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Subject: Reuters -- FERC told Calif natgas to reach limit this summer


FYI


Thursday May 24, 4:11 pm Eastern Time

FERC told Calif natgas to reach limit this summer
By Julie Vorman

WASHINGTON, May 24 (Reuters) - Natural gas supplies will be stretched to the 
limit this summer in California, but demand will ease during the next four 
years as utilities become more efficient and hydropower supplies resume, a 
state regulator told the Federal Energy Regulatory Commission Thursday.

FERC staff held a technical conference to gather information about 
California's natural gas demand outlook from state officials, intrastate 
pipelines, interstate pipelines, marketers and others.

A spike in wholesale electricity prices in the nation's most populous state 
has been blamed partly on a bottleneck in natural gas pipelines. Many of 
California's electricity generation plants are fueled with natural gas.

Bill Wood, the chief natural gas forecaster for the California Energy 
Commission, said demand would be about 6.9 billion cubic feet (bcf) per day 
this year. That compares with 6.7 bcf per day last year and 5.5 bcf in 1995, 
he said.

The state's thirst for natural gas will fall slightly in 2002 and remain flat 
for four years as utilities become more efficient at squeezing electricity 
out of gas, he said. Hydropower imported from the Pacific Northwest should 
also return to normal levels after this year's drought and displace some of 
the gas now being used, Wood told the conference.

NATGAS STRANDED AT BORDER

Forecast demand of 6.9 bcf this year means interstate pipelines bringing 
natural gas supplies into California will be pushed to their limit.

The interstate pipelines feeding the state with gas from the Rocky Mountains, 
New Mexico and other out-of-state fields have a capacity of 7 bcf per day, 
Wood said.

But California's intrastate pipelines that pick up the gas can receive a 
maximum of 6.7 bcf per day, leaving 3 million cubic feet of gas ``stranded at 
the border,'' he said.

Wood and other officials said Sempra Energy's (NYSE:SRE - news) Southern 
California Gas Co, which serves San Diego and the southern portion of the 
state, had especially tight supplies.

Lad Lorenz, director of SoCal Gas capacity and operations, told the FERC 
conference the company had ``adequate'' transmission capacity for its 
customers. Although the lack of hydropower imports from the Northwest has 
increased gas demand by 600 million cubic feet per day on SoCal Gas' system, 
the firm still has enough capacity to handle it, he said.

``We don't anticipate any problems meeting electricity generation demand this 
summer,'' Lorenz said. ``We don't project any curtailments.''

To help cope with this summer's tightness, SoCal Gas is awaiting state 
approval of its plan to add capacity of more than 50 million cubic feet per 
day by salvaging its Montebellow storage field, Lorenz said. It also plans to 
convert about 14 bcf of ``cushion'' gas -- which is used to maintain adequate 
pressure in a storage facility -- into working gas.

The company also has up to 200 million cubic feet per day of interruptible 
capacity, he said.

SoCal Gas is spending $55 million on four projects to expand capacity by a 
total of 475 million cubic feet of firm backbone transmission capacity to its 
system, he said. The projects should be completed by year-end, if they 
received quick environmental approvals.

INTERSTATE PIPELINES HURRY TO EXPAND

Interstate pipelines said they were planning ways to get more natural gas to 
the California border, through upgraded compression equipment and brand-new 
pipelines.

El Paso Pipeline is planning to convert the All-America oil pipeline to 
natural gas, said Patricia Shelton, president of El Paso's western pipeline 
group.

That line, which was recently approved by FERC, will ship about 230 million 
cubic feet per day of natural gas from Texas to the California border by 
autumn.

``We're doing this on our dime to loosen up our system,'' Shelton said.

A major new interstate line, the Sonoran Pipeline, has been proposed in a 
joint venture by Calpine Corp and Kinder Morgan. The 1,000-mile pipeline 
would ship 1.5 billion cubic feet of gas each day from Blanco, New Mexico to 
the San Francisco Bay area.

The companies are trying to get 20-year contract commitments from customers 
to determine if the nearly $2 billion pipeline is economically feasible, said 
Craig Chancellor of Calpine.

Kern River Gas Transmission, a unit of the Williams Cos (NYSE:WMB - news) , 
is planning an expansion of its interstate pipeline to add 906 million cubic 
feet per day of gas. The project, due to be completed by May 2003, will cost 
more than $1 billion, said Kirk Morgan, director of business development for 
Kern River Gas Transmission.

Kern River also plans a temporary expansion of its pipeline to add 135 
million cubic feet of capacity. The extra capacity will be available in July 
through next year, due to air quality restrictions.

FERC's three commissioners, who are wrestling with other California power 
issues, did not attend the technical conference.