The Southern California Gas Company is one of the biggest local distribution companies in the United States, covering much of Southern California, and is a regulated utility within Sempra Energy. One of the wells at its Aliso Canyon storage site has been leaking gas for over three months now, and it’s not expected to be stopped for another month.
We’re not here to comment on the politics or social impact of this event, but we are tracking how this is impacting the California natural gas market. This has really shaken up expectations for the California gas market, as the future of the facility after the leak is repaired is unknown. So why is Aliso Canyon such an important storage facility?
Aliso Canyon is the fourth-largest storage facility in the country, and its 86 Bcf of working gas capacity makes up 64% of SoCal’s total storage capacity. SoCal usually doesn’t even pull inventories down to 49 Bcf, which is the total capacity of SoCal’s other three storage fields. SoCal will not be able to inject into the field until the utility can prove to regulators that all of the other 100-plus wells are safely functioning. SoCal can fill the majority of its demand through interstate pipeline receipts, but it does need to rely on storage during peak demand times of the year.
SoCal demand usually ranges between 2-4 Bcf/d, but can reach as high as 5 Bcf/d on the strongest demand days. The utility could theoretically fill all of its demand on all but a few days a year from longhaul flows to its Wheeler Ridge, North and South Zones, which have capacity of over 3.7 Bcf/d. These interconnects bring gas in to Southern California from the Rockies, Texas and New Mexico.
However, these zones never receive enough gas to push near that capacity level, so the rest is filled in with storage withdrawals. Aliso Canyon makes up about half of SoCal’s withdrawal capacity, but the other three fields on SoCal’s system can pull up to 1.8 Bcf/d from storage. This means that if you combine the capacity of the three major zones with this withdrawal capacity, SocalCal’s total capacity to meet demand is nearly 5.6 Bcf/d. Seems like SoCal shouldn’t have any reliability issues with all this capacity, right?
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But let’s take a closer look at the utilization of the three major zones. These zones usually receive between 2-3 Bcf/d from long-haul pipes such as El Paso and Transwestern from the desert Southwest, Kern River, and Southern Trails from the Rockies, as well as some from its intrastate neighbor Pacific Gas & Electric to the North. Even though there is a capacity of 3.7 Bcf/d between these zones, there is only 2.6 Bcf/d of contracted firm rights in place to deliver supplies.
When you combine this 2.6 Bcf/d figure with the 1.8 Bcf/d of withdraw capacity without Aliso Canyon, you get to 4.4 Bcf/d. Since demand can reach as high as 5 Bcf/d, there could be some price spikes in order to attract gas to the SoCal Border on high demand days in the winter.
This could be a longer-term issue as well, and there could also be some price spikes next winter if the field isn’t back in operation at that point. SoCal could bring up LNG supplies from the Costa Azul terminal in Baja, California, but prices would have to be pretty high to incentivize LNG dispatch. It’ll be interesting to watch how this shakes out and if SoCal adds incremental contracts from some of those long-haul pipelines.