SDG&E;’s Winter Oil Reserves Adequate, Utility Official Says

Growing concern over a war in the Middle East has pushed oil prices close to record levels and ignited fears of a possible oil shortage during the coming winter in colder climates, but San Diego Gas & Electric believes that it has a sufficient supply of the now-costly fuel.

“We’re always watching the (spot) markets, but we’re comfortable . . . we have sufficient supplies,” said Jim Nugent, manager of SDG&E;’s fuel department. “All of our oil is in the tanks now and we have no plans to make any purchases before next spring.”

SDG&E;, which has stockpiled 1.6 million barrels of oil, expects to burn about 1 million barrels of low-sulfur oil at its local electric generating plants during the coming winter. “That leaves us with about 600,000 barrels for an emergency . . . should something happen to the gas pipeline system, or one of the nuclear plants (stop generating),” Nugent said.

SDG&E;’s optimism stems from the fact that the utility committed in June to purchasing 285,000 barrels of oil at a cost of $14.30 each, including shipping charges. Late last week, Singapore spot crude was offered at about $31 per barrel, which, along with transportation expenses, would boost SDG&E;’s costs to about $37 per barrel, Nugent said, if the utility were in the market.

Ten years ago, when SDG&E; was burning only oil in its plants, the threat of war in the Middle East and the resultant increase in oil prices “would have been disastrous,” Nugent said.

But SDG&E; has cut its dependence upon oil through increased use of natural gas, a partial ownership stake in the San Onofre nuclear plants and construction of the Southwest Powerlink, a transmission line that connects power-hungry SDG&E; with utilities in the Southwest that have excess power to sell. Consequently, even if SDG&E; were forced to enter the bidding war for spot oil, SDG&E; would spend relatively little money to buy oil, Nugent said.

SDG&E; prefers to generate electricity by burning relatively clean--and, generally, less expensive--natural gas in its power plants. But natural gas shortages during recent winters have forced SDG&E; to burn oil.

“If it’s not extremely cold there’s excess capacity for Southern California Gas (which operates gas pipelines in Southern California), but when it’s very cold, or too cold for a long period of time, you exhaust that (excess) capacity and you do have to go to curtailments,” Nugent said.

Southern California Gas’ pipeline is capable of delivering 450 million cubic feet of gas to SDG&E; on a single day. While that supply is sufficient to meet the normal demand, on a very cold day, customer demand for natural gas in San Diego and southern Orange County could hit 450 million cubic feet, Nugent said.

SDG&E; also has taken steps to improve the reliability of its natural gas system. It now has about 13 billion cubic feet of natural gas in underground storage in the Los Angeles area. SDG&E;’s natural gas is stored in underground fields operated by Southern California Gas, which now has about 100 billion cubic feet of gas in storage for the winter season.

In addition to buying natural gas from Southern California Gas, SDG&E; now buys some of its natural gas directly from suppliers in Oklahoma, New Mexico and Texas. SDG&E; ships its gas purchases to the Los Angeles storage area through different interstate pipelines, Nugent said.