Smart Growth or Gaslock?

My feelings quickly turn into non-electricity-producing steam when stuck in traffic on two-lane roads jammed with vehicles heading in and out of sprawling suburbia. You know the feeling. I seethe, you seethe, we all seethe over congestion. But our highways are not the only areas hit by sprawl. It appears that natural gas users may soon be as frustrated as commuters. Because the liquefied natural gas industry is in boom mode, expect gaslock to be the pipeline equivalent of gridlock in the next few years. Among the numerous LNG projects in the works are terminals planned along the coast of Baja California. The channels for moving the imported gas into California, however, may become as clogged as the traffic from badly planned subdivisions. "The pipelines are very narrow and will restrict the quantity of gas that can flow," warned David Maul, California Energy Commission manager of natural gas. The California Public Utilities Commission and the CEC are looking at ways to avoid pipeline gaslock. The CPUC is in the midst of a rulemaking to expand pipes and storage to avoid "a natural gas shortage in the future, which could otherwise cause a new energy crisis for California," according to regulators. To be spared that undesirable state of affairs, the commission is asking pipeline owners for input on how gas will move north from LNG terminals in Mexico. It hopes to issue guidelines this summer for getting gas into Southern California. Like the impacts of sprawling subdivisions, traffic jams are only part of the problem. The northward flow of foreign Btus also entails thorny treaty, environmental, and safety issues. Some question whether gas can be imported into California under the North American Free Trade Agreement (NAFTA) without tariffs. NAFTA only addresses sending gas into-not out of-Mexico. "We are very concerned. There ought to be symmetry," Maul said. Bringing the gas into the U.S. would require a presidential permit with George W. Bush's signature, he added. Assuming you can get beyond the physical capacity and treaty issues, there are also environmental justice questions. More LNG plants in Mexico will likely lead to the power plant equivalent of the maquiladora industry, which sprang up along the border and wreaked huge environmental damage because of lax pollution laws. With more LNG come more Mexican power plants and thus more pollution. Unlike the case in California, air emission offsets for power plants are not required under Mexican law. Another environmental issue is water-and how power plants that use large quantities of water for cooling affect limited H2O resources in Baja's arid coastal region. Sempra, Shell Trading, and ChevronTexaco are among the companies hoping to build LNG terminals in Mexico. Shell is working with Sempra to site and build an LNG regasification project. Shell will feed the Baja facility with its own foreign supplies and be responsible for getting the gas from the terminal to market. Shell's main concern is the CPUC and the policy it develops, particularly regarding pipeline expansions and the allocation of its costs, as well as preferences for gas supplies, said Marcie Milner, Shell Trading director of regulatory affairs. Marathon Oil was working on a Baja LNG project, but the land that would host the terminal was seized by the state government, ending the project early this week. Before the expropriation, the company was assessing the options for moving gas into the marketplace, which included the Golden State. Options included building Marathon's own pipeline and having the flow in other pipelines reversed to accommodate the foreign gas. The pipeline system that would send gas into California directly from Mexico is owned and operated by Sempra affiliates Southern California Gas, and San Diego Gas & Electric. Last week, SoCal Gas and SDG&E asked the CPUC to allow them to integrate their systems to ease access to LNG plants (see Circuit, February 27, 2004). A $200 million investment would be needed to make room for LNG supplies and accommodate 300-600 million cubic feet per day, according to SoCal Gas. The big issue then is who picks up the expansion tab. Would it be paid by LNG developers, entities that sign the long-term gas contracts, or ratepayers? "We don't want Sempra ratepayers subsidizing Sempra affiliates without receiving direct benefits," said Marcel Hawiger, an attorney with The Utility Reform Network. He and others aren't convinced that a pipeline expansion is the silver bullet for unclogging the system. While pipelines from Mexico to California are physically limited, there are routes, albeit less direct, for getting the gas into California. However, the state energy agencies are pushing to expand intrastate pipeline gas transportation. In addition, the gas constraints could come with an upside-competition for the space could lead to less costly gas knocking out higher-priced fuel. "We are dedicated to enhancing gas-on-gas competition," said Norman Pedersen, an attorney representing the Southern California Generation Coalition. Still to be tackled in a yet-undesignated forum are international policy issues-tariffs, the environment, social justice, and even the legitimacy of using other countries' finite resources. We can only hope that state and federal regulators and gas companies do a far better job of planning for growth than subdivision developers and spare us from gaslock, not to mention boiling resentment from inequitable impacts on the other side of the Mexican border. Elizabeth McCarthy

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