Battle to Pipe Gas to California Heats Up : Coastal’s Plan to Move Clean Fuel From Wyoming Is First to Win Approval, but It Won’t Be the Last

The first in a series of hotly disputed natural-gas pipelines to California won federal approval Wednesday, touching off a scramble to line up enough customers to justify building the $665-million project.

A 1,000-mile line that oil and gas giant Coastal Corp. proposes to build from Wyoming to the oil fields near Bakersfield was granted a permit by the Federal Energy Regulatory Commission, Coastal said.

The permit approval was expected, and the Houston-based oil and gas company said it hopes to start construction later this year. The pipeline would ship natural gas from gas fields in Wyoming to oil fields in Kern County, where it would be burned to make steam. The steam is piped underground to force California’s exceptionally heavy crude oil to the surface.

Permit Offers Advantage

But the pipeline is far from assured. At least two other competing proposals are under review by the federal energy commission and are expected to also win permits. The first to line up enough customers to assure financing would presumably be the pipeline built.

Officials of Coastal’s Wyoming-California Pipeline Co. subsidiary asserted that being the first to obtain a permit gives them a big advantage in persuading customers to sign contracts to buy natural gas. But observers said that remains to be seen.

“This is a significant step in the case, but it by no means settles anything,” said Michael Day, deputy general counsel at the California Public Utilities Commission.

Pipelines have also been proposed by Kern River Gas Transmission Co., a joint venture of Tenneco and Williams Cos., which would also move gas from Wyoming; Mojave Pipeline Co., a venture of Enron Corp., and El Paso Natural Gas, for a shorter, cheaper line from Arizona.

In addition, as many as five other groups have laid out plans to feed California’s growing appetite for natural gas by piping it here from Canada, the Rockies and the Southwest. The biggest attraction is the oil fields in Kern County.

Environmental Pressure

The county’s worked-over oil fields--an increasingly promising source of oil as technology for recovering more oil from old reservoirs improves--are under environmental pressure to use clean-burning gas instead of other fuels as part of their growing enhanced oil recovery projects. It is considered the largest new natural gas market in the United States.

But while the chief customers for the proposed gas lines are such big oil companies as Chevron, Texaco and Shell, the outcome of the battle has major implications for all California users of natural gas.

The construction of pipelines such as that proposed by Coastal--an interstate line that could sell gas directly to the oil companies rather than have it transported within the state by California gas utilities’ pipelines, as is now the case--could pose a threat to the utilities themselves. There are currently no interstate lines penetrating California.

And the loss of major customers by Southern California Gas and Pacific Gas & Electric, which are now providing gas to the Kern County fields, could drive up rates by forcing residential customers to foot more of the bill for operating the utilities, Day said.

That prospect and disagreements over how much additional gas pipeline capacity the state needs prompted the PUC last month to order all the parties--the utilities, the big customers and the would-be pipeline builders--to seek a comprehensive agreement on how much capacity the state needs and how it should be supplied.

The issue was fueled in the past year when SoCal Gas, plagued by weather, storage and other problems, was twice forced to curtail deliveries of gas to big customers. That persuaded many regulators who had earlier been skeptical that the state needs more natural gas pipeline capacity.

Wyoming Hit Hard

“My own personal view is this state could use some additional gas capacity,” said Mitchell Wilk, president of the PUC. “But I’d say the jury is completely out on how much. That’s exactly what we are asking the parties to determine.”

Approval of the Coastal permit was good news in the state of Wyoming, which has promised financial incentives to Coastal if the pipe is built. The project would tap gas in southwestern Wyoming that is not being produced. The state has been hit hard by the slump in oil prices.

Obtaining the first permit enables Coastal to “go around and wave the certificate in the air and say to customers, ‘Look at us,’ ” said Day. But the Kern River project claims already to have a big contract with Chevron. And the procedure followed by the Federal Energy Regulatory Commission, which expedited Coastal’s permit process, has prompted threats of a lawsuit.

“It certainly will not go uncontested,” said an official at SoCal Gas, which contends that the state does not need additional pipeline capacity.

If completed, the Coastal pipeline will ship up to 650 million cubic feet of gas a day, primarily for the enhanced oil recovery projects. The company said it hopes to start transporting gas to California by early 1991.

Harold Burrow, chairman of the WyCal subsidiary and vice chairman of Coastal, called the federal energy commission’s expedited approval “an important step in introducing non-discriminatory, competitively priced natural gas transportation service into California at the earliest possible time.”

The pipeline system would include four compressor stations and have an initial capacity to transport up to 400 million cubic feet of gas a day from Wyoming plus up to 250 million cubic feet from other U.S. producing areas.