Owners of two proposed pipelines to bring natural gas from Wyoming and Texas into Southern California proposed Monday to join forces, a key strategic move in the ongoing competition to peddle natural gas to Californians.
Owners of the Kern River and Mojave pipelines--until now competing bitterly against each other for federal permission to build interstate lines into California--said they agreed to merge their pipelines at Barstow.
The jointly owned portion of pipe carrying up to 1.1 billion cubic feet of natural gas per day would then proceed toward the Bakersfield area, where some would be used in the oil fields and the rest would be diverted for other commercial or residential use.
A third party to the Kern-Mojave deal is Southern California Gas Co., which agreed to buy Wyoming natural gas from the interstate pipeline to serve its customers. The gas company would be able to buy the California section of pipe in 20 years.
The alliance is a major step in a long-running process of determining which of half a dozen pipeline projects will ultimately win federal permission, customers and financing deemed necessary to begin construction.
Compete With PG&E;
By joining forces, the Mojave and Kern projects appeared to create a major competitor for Pacific Gas & Electric Co. of San Francisco. The utility's pipeline subsidiary, PGT, has signed up enough customers to fill a proposed 600 million cubic feet per day pipeline that would run directly from Canada into Southern California.
"There are now clearly two front-runners," said Michael Day, deputy general counsel of the California Public Utilities Commission, which earlier this year instructed the various developers to work out deals among themselves. "This is the start of the end game."
The PUC will recommend a favored pipeline or combination of lines, but the Federal Energy Regulatory Commission has the final regulatory voice.
A PGT spokeswoman dismissed the Kern-Mojave venture as little more than the two developers' original plans "in a new hat." She said SoCal Gas--which has refused to buy space on PGT's proposed pipeline--would pay a higher price for gas brought in by the pipeline announced Monday.
Big New Market in Kern
However, the PUC's Day noted that the Kern-Mojave project could bring in gas directly from three regions--Wyoming, the U.S. Southwest and Canada--a key advantage in the view of state officials seeking to geographically diversify California's energy sources.
The rush to build gas pipelines stems from the big new market for natural gas in Kern County's oil fields and, more recently, from spot shortages in Southern California, and new environmental pressures to replace oil with natural gas in the state.
The oil firms need natural gas to generate steam that they pipe underground to help bring Kern's tar-like crude oil to the surface. But they want to contract for their gas directly through interstate pipelines--such as the Kern and Mojave proposals--that aren't subject to what the oil firms view as the erratic regulatory behavior of the PUC.
The Kern and Mojave pipelines together have apparently signed up most of the oil companies and have enlisted SoCal Gas as well, enough to put the Kern project above its feasibility "threshold" of 500,000 million cubic feet of gas per day, said an aide to Wyoming Gov. Mike Sullivan.
The state of Wyoming has agreed to subsidize the building of any pipeline to California that carries at least 350,000 million cubic feet of Wyoming natural gas per day. Sullivan has been lobbying Californians on the virtues of gas from his state.
One drawback to the Kern-Mojave project could be its size. Some question whether the state will need an extra 1.1 billion cubic feet of gas per day, and the cost of unused capacity would ultimately be borne by ratepayers.
Although the PGT and Kern-Mojave proposals appear to have the upper hand in terms of customers, a third venture--the Wyoming-California Pipeline Co.--is the only one to date with a pipeline permit from the federal commission. But it has only managed to win commitments to buy 100,000 million cubic feet per day.
"We haven't seen anything that would change our plans," said a spokesman at Coastal Corp. in Houston, owner of the Wy-Cal project. He promised an announcement soon detailing "one or more" additional customers.
Mojave's proposed pipeline would originate in Topock, Ariz., near the California border, and would have an initial capacity of 400 million cubic feet per day. The line would be able to bring in additional supplies from the Southwest, the major source of California's present gas supplies.
Mojave is owned jointly by Enron Corp., Houston, and El Paso Natural Gas Co., a subsidiary of Burlington Resources.
The Kern River pipeline would begin in Opal, Wyo., with an initial capacity of 700 million cubic feet per day. It is a joint venture of units of Tenneco of Houston and the Williams Cos. of Tulsa, Okla.