CEC Says LNG Expected to Fill Coming Southwest Production Gap

By Published On: June 8, 2007

The demand for natural gas in California can be expected to lag behind the rest of the nation over the next 10 years. At the same time the supply of domestic gas is expected to dwindle, according to an assessment by the California Energy Commission’s generation fuels office. The forecast was presented at a June 7 workshop in the Energy Commission’s 2007 Integrated Energy Policy Report proceeding. Among the conclusions presented by Jim Fore, Energy Commission principal author of the assessment, were that California’s demand for gas would grow at an annual rate of just 0.8 percent from 2007-2017 compared to a national growth rate of 2.1 percent. The slower growth rate is expected primarily because of increased use of renewable energy; slower growth in electric generating capacity; reduced gas demand for enhanced oil recovery; and flat growth in the industrial sector. Demand for natural gas over the same time period is forecast to increase at an annual rate of 3.6 percent in Mexico and 1.7 percent in Canada. On the supply side, a whopping 83 percent of North American gas demand comes from the U.S., with Canada accounting for 12 percent, and Mexico 5 percent, according to the report. However, North American natural gas production is projected to decline during the forecast period by about 0.5 percent on an annualized basis, or 5 percent over the 10-year period. The amount of gas produced in the Southwestern U.S., which enters California through Blythe, is expected to gradually decrease as liquefied natural gas imported from Mexico displaces domestic production from the Southwest. One uncertainty is how much of an increased role liquefied natural gas can be expected to play. “Liquefied natural gas demand will experience high rates of growth, but there are substantial uncertainties in the way in which that demand will develop and be supplied,” said Jim Jensen, Jensen Associates consultant. He gave a presentation on the global outlook for LNG during the workshop. “The way in which world gas demand responds to a high energy price/high cost environment will be an important determinant of how much LNG will be needed,” he said. In a May 22 presentation, Sempra Energy president Darcel Hulse told the Institute of the Americas that long-term contract prices for Asian LNG have risen from less than $4/MMBtu in the 2002-03 period to a bit under $12/MMBtu late last year. Sempra plans to open an LNG import plant in Baja California early next year, which would supply California. Meanwhile, on a utility basis, the Energy Commission office forecasts Pacific Gas & Electric will see a net increase in residential gas usage of 1.5 percent annually from about 610 million to over 700 million cubic feet per day in 2017. The utility’s commercial demand is expected to rise from about 230 million to about 275 million cubic feet per day over the next 10 years, an increase of about 1.9 percent annually. San Diego Gas & Electric’s residential demand is projected to rise 1.4 percent annually over the next 10 years, from slightly less than 100 million to just over 100 million cubic feet per day. Commercial demand is expected to increase from 50 million to about 65 million cubic feet per day over the next 10 years, an increase of about two percent annually. Southern California Gas residential demand is anticipated to increase from just 800 million to about 900 million cubic feet per day in 2017. Commercial demand is expected to rise from about 290 million to about 350 million cubic feet per day over the next 10 years, an increase of about 1.7 percent annually.

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