SDG&E; Turns to Oil as Cold Snap Causes Natural Gas Scarcity

Record demand caused by the cold weather has helped trigger shortages of natural gas in Southern California this week, forcing major commercial customers such as electric utilities to switch to oil to fuel their boilers to make electricity.

Southern California Gas said Friday it has been running short by about 500 million cubic feet per day, or nearly 10% of the natural gas demanded by its customers over the past several days. It has been drawing on its underground reserves to help.

At San Diego Gas & Electric, which buys most of its gas from Southern California Gas, demand hit a record 453 million cubic feet Monday. The company said it switched its two electric generating plants to burn fuel oil early in the week “to free up all available natural gas for our residential customers.”

Southern California Gas subsequently curtailed delivery of natural gas that SDG&E; typically uses in its two electric generating plants. The utility has “a good supply” of fuel oil available, according to a spokesman.

All-Time High

A spokesman for Southern California Gas, the nation’s largest gas utility, said the demand for gas by small customers reached an all-time high of 3 billion cubic feet on Wednesday and total demand hit 4.9 billion cubic feet, just shy of the record for the entire system.

The shortfall has prompted concern at the California Public Utilities Commission over the adequacy of the reserves maintained by Southern California Gas. The company said about half of the gas it sent out this week came from its reserves.

“We’ve heard that the storage field’s level is now where it’s typically at at the end of January,” said Tom Beach, an aide to Commissioner Don Vial.

But Robert Loch, senior vice president at the utility, stressed that the company will have no trouble supplying full service to all customers without the capacity to switch to burn oil.

“We have plenty of gas left in the ground for the guy in Pasadena and Newhall. They’re our top priority,” Loch said. “We are nowhere near testing our ability to deliver all the gas that’s needed by the customers who can’t switch. There’s no need to worry. We’re safe.”

About half of the natural gas sent out by the company goes to commercial customers--such as SDG&E--with; the capability to switch to oil, and their allocations would be withheld first.

Gas Bills to Rise

However, heavy consumption because of the cold weather is likely to send gas bills up sharply as customers face higher rates tied to the amount of gas used. Those rates are roughly triple the sums charged for minimal usage.

Officials at Southern California Gas and the biggest pipeline serving the region, El Paso Natural Gas, portrayed the shortages as the result of cold weather here and elsewhere in the country as well as effects of natural gas deregulation at the federal level.

“It’s the confluence of several things going wrong at the same time,” said Gary Simon, director of California affairs for El Paso Natural Gas. He said the shortages will continue off and on all winter.

A Southern California Gas spokesman said shortages of gas on the spot market materialized in November as cold-weather demand in the Midwest and East diminished supplies. That created a “significant shortfall” in purchases by the gas company, which turned to El Paso for more.

Simon said the cold weather has also caused mechanical problems with its pipelines and pumps running from its gas fields in Oklahoma, Texas and New Mexico. He said that, combined with the fact that Southern California Gas had been buying most of its gas on the spot market instead of under long-term contracts with El Paso, meant the pipeline was unable to quickly supply the utility’s sudden need for additional gas this month.

Orders by the Federal Energy Regulatory Commission that enable gas utilities to buy gas on the spot market instead of from the pipeline companies have been under attack by the pipeline firms, who say they can’t hold large supplies of gas in place without long-term orders from buyers such as Southern California Gas.

“These customers have elected to pursue a short-term, and we submit a short-sighted, strategy of purchasing spot supplies for an apparent cost savings without regard to the longer-term consequences of that strategy,” Simon said.

Regulations to Change

Southern California Gas responds that it is obligated by the state Public Utilities Commission to buy the cheapest gas available, which is that on the spot market.

Compounding the problem, said Simon, is a pending change in federal regulations Jan. 1 that alters the way gas is bought and sold. That has “made everyone nervous” and prompted some utilities across the country to build stockpiles, further tightening supplies, Simon said.

The shortages that probably will occur during the remainder of the winter are “not a shortage created by the producers, but a shortage created by government bureaucrats,” according to Norm Blumenthal, a San Diego attorney who deals with the natural gas industry. “And the whole thing means that price increases eventually will get shoved down to consumers--all because the bureaucrats don’t know what they’re doing.”

Southern California Gas curtailed deliveries to the major electric utilities and several municipal utilities. Southern California Edison said it switched several of its power plants to burn oil Thursday and by Friday, 75% of its load was being fueled by oil. The company burned 84,000 barrels of oil Thursday from its stockpile of about 6 million barrels, said Robert Bridenbecker, vice president of fuel supply.