Shape Natural Gas Future via Market, Say Consumer Advocates

By Published On: December 31, 2003

With natural gas supplies in question and prices rising, the state?s two lead energy agencies are checking into what policy makers can do about what appears to be a looming gas crisis. In an effort to gather basic information, the California Public Utilities Commission and the California Energy Commission found many gas market players touting their own industries. The CPUC’s Office of Ratepayer Advocates (ORA) proposed a free-market approach, cautioning policy makers against prescribing one option over another while the market shakes out. With its potential to create a huge infusion of gas supply, liquefied natural gas (LNG) has emerged as a potential major player in the gas supply scene. According to the Federal Energy Regulatory Commission, between 2006 and 2009, roughly 8.65 bcf per day of natural gas may be available from potential LNG imports located in California and Baja California. At a December 9-10 workshop, Sempra Energy claimed LNG development is all but inevitable: ?California has little choice but to allow the development of liquefied natural gas terminals; the only question is where and how.? Sempra is already heavily invested in LNG. In the works for the company is a 1.3 bcfd import terminal that it hopes will come on line in 2007. LNG costs are competitive with those of other natural gas sources, asserted Thomas Giles, chief operating officer for the Mitsubishi-owned Sound Energy Solutions (SES) LNG Import Terminal Project. SES is developing an LNG import terminal in Long Beach capable of sending natural gas to Southern California Gas. The liquefied gas will be brought to the U.S. in oceangoing tankers, unloaded at the SES terminal, and temporarily placed in storage tanks before it is converted back into usable gas. On the other hand, Wild Goose Storage maintained that new sources of supply such as LNG will be more expensive than storage and can?t be developed as quickly. Multicycle storage facilities are the best way to handle new natural gas load, according to the company. To bolster its case, Wild Goose pointed to a National Petroleum Council forecast indicating that significant additional storage is needed by 2005 to meet market growth. Watson Cogeneration and the California Cogeneration Council recommended that once contracts with El Paso and Transwestern pipelines expire, utilities diversify their supplies rather than relying on pipelines. This could help bring down costs for core customers, said Tom Beach, principal for Crossborder Energy. Standing back from the market players, ORA held that the core-noncore system, which has been batted around as an approach for electricity direct access, has worked for gas markets. Under this system, utilities make gas decisions for residential and commercial customers, while larger customers make their own gas deals. Forcing utilities? hands could preclude them from securing good deals, according to ORA analyst Mark Pocta. He added, ?The market will decide what goes and what doesn?t go.? It is hard to predict, in Pocta?s view, how many LNG terminals will come to fruition. Also unknown is how many end users will commit to liquefied gas and which investors will take the necessary financial risks. One LNG terminal has the potential to produce between 700 MMcfd and 1 bcfd, an amount that would certainly affect the rest of the market, Pocta noted. Focusing on demand reduction, the California Energy Commission said reliance on natural gas used to generate electricity in Western states could drop an average of 2.5 percent in the next nine years if investor-owned utilities comply with the renewables portfolio standards. Under the accelerated standards advocated by the CEC, the average reduction is 4.5 percent. The CEC plans to hold a series of workshops next year to scrutinize the options laid out in the joint workshop.

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