Sempra Says LNG Imports May Not Serve California

According to Sempra Energy subsidiaries, bringing liquefied natural gas into their systems could require rolling hundreds of millions of dollars in pipeline upgrades into their rate base. While seeking a gas rate hike through the California Public Utilities Commission to cover the costs of preparing pipeline systems for LNG from terminals proposed in Baja California, Mexico, and Southern California, the companies have raised the prospect that much of that gas may go to Mexico and other recipients outside California. Even if this investment brings new LNG into the state, it may simply displace rather than adding supplies, but ratepayers would still be on the hook. Sempra?s subsidiaries, however, contend ratepayers would reap the benefits of imported gas. Money spent to expand facilities to bring LNG into Southern California, and even to send it out of state, ultimately could save ratepayers $200 million a year by increasing the availability of gas to the region and lowering the price through competition, said Rick Morrow, vice president of customer service for both San Diego Gas & Electric and Southern California Gas. LNG importers that have proposed terminals in both Baja California and Southern California ?want to get into a liquid market,? added Dave Taylor, director of gas operations for SoCal Gas. ?If they?re just restricted to Southern California, it?s kind of limited compared to the size [of] supplies they?re talking about.? Details of the companies? proposed expenditures were outlined in filings with the commission earlier this year. They are just now being analyzed as an administrative law judge prepares to examine the record in the commission?s long-term gas supply proceeding. SoCal Gas and SDG&E filings outlined a number of possible scenarios for handling LNG, including one under which the utilities would need to spend up to $383 million on system upgrades to import gas from Sempra Energy International?s proposed Energia Costa Azul LNG facility near Rosarito Beach, Mexico. The facility would be able to import up to 1 bcf of LNG a day. Expenditures to accommodate LNG imports from other proposed facilities could total up to $118 million in Oxnard and $88 million in Long Beach. Limiting LNG imports to customers ?in Southern California, or even the entire state, might discourage the construction of facilities necessary to deliver multiple new sources of gas supply,? Sempra subsidiaries argued to regulators. They raised the prospect of delivering imported LNG to states east of California by reversing the flow of interstate pipelines that now bring gas west into the state from the Rocky Mountains and Southwest plains. To facilitate ?firm? out-of-state deliveries, the Sempra utilities said they would need to spend additional money to revamp facilities that now connect to incoming interstate pipelines. Possible upgrades to allow the interstate flow of LNG brought into Oxnard?where proposals for two offshore LNG terminals are pending?include up to $165 million worth of new facilities at Wheeler Ridge and $72 million at Kramer Junction, depending upon the volume of gas sent east. Gas also could be provided on an interruptible basis to points east by displacing use of gas now sent to the region with LNG deliveries. Interstate pipeline gas could be sold to upstream customers in other states. Meanwhile, gas brought into Sempra?s proposed LNG terminal in Baja California may not provide Californians gas for long. ?When our facility is completed in 2007, we expect that Mexico will consume about half of the gas from the plant and virtually all of the output by the middle of the next decade,? wrote Michael J. Murray, director of environmental and safety policy and compliance for Sempra Energy, in a May 21 letter to Greenpeace. Sempra spokesperson Art Larson acknowledged that energy demand was growing in northern Baja. ?The rates I?ve seen are 7 to 10 percent a year,? he said. Ultimately, the market for gas may justify construction of an additional LNG terminal in Baja, Larson added. ?It would be helpful to have Mexico less dependent upon the United States for gas,? said David Maul, manager of natural gas and special projects for the California Energy Commission (CEC). Right now, northern Baja California consumes about 500 MMcfd of U.S. gas imports, he said. However, a coalition of consumer and environmental organizations are questioning the wisdom of any rate increase for accommodating LNG from Mexico, according to John Coequyt, energy policy analyst for Greenpeace. In a letter to the commission this week, the coalition known as Ratepayers for Affordable Clean Energy asked the CPUC to ?get to the bottom of this question before making any determinations.? The groups favor meeting future energy needs through conservation and renewable resources. At the root of the issue is how much natural gas will be needed in California, said Coequyt. The CEC has forecast that state demand for gas will grow by about 1.5 percent a year through 2013. Utilities, however, have forecast little growth in demand, but instead are concerned primarily about dwindling supplies in the gas fields to the east that now supply California. Sempra?s gas utilities endorse renewable energy and conservation as ways to minimize the need for gas, said Morrow on behalf of SDG&E and SoCal Gas, but both internal and industrywide studies lead them to believe that additional gas supplies are also needed. CPUC docket number R-04-01-025

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Sempra Says LNG Imports May Not Serve California

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