SDG&E; Buys 500,000 Barrels of Fuel Oil on the Spot Market

San Diego Gas & Electric, which stopped buying fuel oil under long-term contracts in part because of the repercussions of an ill-advised 1978 fuel oil deal, has purchased 540,000 barrels of low-sulphur fuel on the spot market.

SDG&E; has shied away from long-term fuel oil contracts for more than five years, according to Jim Nugent, SDG&E;’s fuel contracts supervisor. Higher fuel oil prices and the 1978 deal that eventually drew a $45-million fine from the state Public Utilities Commission combined to make oil unattractive to the utility.

However, SDG&E; is turning to the spot market when cheaper oil prices make the fuel attractive, Nugent said. The spot market involves surplus oil that is often purchased at prices below those offered in long-term fuel contracts.

The fuel oil will be off-loaded from a ocean tanker and piped to the utility’s Encina power plant in Carlsbad starting Wednesday. It will be used to supplement natural gas shipments during the coming winter months.

SDG&E; has one remaining long-term contract and is “approaching the spot market on a deal-by-deal basis,” Nugent said.

Although SDG&E; is “watching fuel oil developments throughout world, our main area of interest is the Pacific, which gives us easy delivery” by ocean tanker, Nugent said.

SDG&E; occasionally burns fuel oil at its South Bay and Encina plants. The fuel oil shipment arriving tomorrow will help “build inventory for the winter,” Nugent said.

Nugent said the fuel oil is “comparably priced” with natural gas, and that the purchase “should send a signal to the natural gas industry to keep their prices competitive.”

Although the utility might return to the spot market on occasion, “Fuel oil clearly plays a back seat role to coal, nuclear and hydro purchases,” Nugent said. “When it comes to buying natural gas, it’s a matter of price.”