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Is there LNG in California’s Future?

“LNG: When East Meets West”Zeus Development Conference

Long Beach, CA

by

David MaulManager, Natural Gas Office

California Energy CommissionApril 23, 2003

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Today’s Talk

• California’s current natural gas situation

• California’s future natural gas assessment

• California energy policies

• LNG’s special energy role in California

• Unresolved issues

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California Energy Commission

• State’s energy policy agency• Power plant siting• Conducts long term energy supply, demand,

and price forecasting• Determines implications on gas pipeline

capacity• Determines need for new infrastructure• Considers risks to reliable service and

reasonable, stable prices

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Long term gas supply, demand, and price forecasts

• Modeling includes US, Canada, and Mexico– Natural gas supply basins– Natural gas demand centers– Pipelines to connect

• Considerations– Huge amount of proposed electric generation in

and about California– Energy efficiency

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Western North American natural gas pipelines

Western CanadianSedimentary Basin

Rocky Mountain Basin

San Juan BasinAnadarko Basin

Permian Basin

Kingsgate6

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Topock

Blythe

Malin

Stanfield

Coleman

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1 ANG2 El Paso3 Kern River4 Mojave5 Northwest6 NOVA7 Paiute8 PG&E9 PG&E GT-NW10 SoCalGas11 SDG&E12Transwestern13 Tuscarora14 Southern Trails

(Not to scale)

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California’s Current NG Situation

• Core demand is moderate

• Electrical generation (EG) demand is significant

• Supplies are adequate

• Infrastructure is adequate

• Prices have risen

• Market prices are volatile

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New Power Plants in California

• Since 2000 energy crisis:– Many new NG power plants

• 2701 MW added in 2001

• 2449 MW added in 2002

• 5020 MW being added in 2003-2004

• 4506 MW permitted but not constructed

– Additional renewable projects added

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California’s Future NG Assessment

• Core demand is moderate

• EG demand is increasing and driving overall demand

• Western US EG demand is increasing faster

• Supplies are adequate in near term

• Prices are increasing

• New infrastructure is needed

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Historical and Forecasted CA Gas Demand

June 2002 Forecast

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Need for New Infrastructure

• Results of CEC staff 2002 analysis show:– N. Cal needs more pipeline capacity or LNG by 2007

to meet physical need

– S. Cal meets minimum physical criteria through 2012

– Prices will rise

– CEC needs to further investigate risk management

• Current gas financial markets are highly volatile

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CEC Staff Updating its Analysis

• Conducting a 2003 - 2013 assessment

• Preliminary results show higher prices

• Initiating risk analysis work

• Including an LNG scenario

• Report due out in late May

• Workshop scheduled for mid June

• Visit CEC webpage at www.energy.ca.gov– Look for IEPR

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California’s Energy Policies

• Draft Energy Action Plan• Natural Gas Market Price Spike Report• Governor’s Natural Gas Working Group• Integrated Energy Policy Report

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Draft Energy Action Plan

• Issued jointly by CEC, CPUC, CPA• Focuses on electricity and natural gas• Goal: “Ensure that adequate, reliable, and

reasonably-priced electrical power and natural gas supplies, including prudent reserves, are achieved and provided through policies, strategies, and actions that are cost-effective and environmentally sound for California’s consumers and taxpayers.”

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Draft Energy Action Plan

• CEC/CPUC/CPA commit to:– “License and, where appropriate, fund

construction of new energy facilities that are consistent with the reliability, economic, public health, and environmental needs of the state.”

– “Partner with governmental and other groups in western North America to pursue commonly held energy goals.”

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Draft Energy Action Plan

• Actions to be undertaken now for NG:– “Evaluate the net benefits of increasing the state’s

natural gas supply options, such as liquefied natural gas,

– Support electric utilities and gas distribution companies entering into longer term contracts as a hedge against volatile and high spot market prices.”

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Natural Gas Market Price Spike Report

• Governor directed CEC and CPUC to investigate rapid increase in spot market prices

• Report prepared jointly in 2 weeks

• Recommended further actions:– “Consider a statewide policy on importing LNG

and possible construction of LNG receiving terminals in California.”

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Governor’s Natural Gas Working Group

• All state agencies involved with natural gas

• Meet biweekly

• Monitor markets and NG situation

• Provide early warning for action by Governor

• Improved communication/coordination

• Examining LNG

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Integrated Energy Policy Report

• CEC energy policy proceeding

• Examining all energy sectors

• Close examination of electricity and NG market issues

• Numerous workshops/hearings this year

• CEC website: www.energy.ca.gov

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LNG’s Energy Benefits for California

• LNG projects offer:– additional supply, similar to a gas field– delivery capacity, similar to a pipeline– additional storage, similar to a local facility– supply diversity, gas from a new, price-

competitive source– fuel diversity, liquid fuel for transportation

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Unresolved Issues

• No overall California policy on LNG

• LNG facilities must meet environmental quality and public health and safety requirements

• LNG facility permitting processes unclear

• Energy security issues have not been reconciled yet

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Summary

• California needs additional gas by 2007 to meet physical needs

• California could benefit from additional lower priced gas earlier to meet economic needs

• LNG offers special energy opportunities for California

• Significant unresolved issues remain

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• Thank you for listening.

• Any Questions?

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PG&E demand and natural gas demand receiving capacity

June 2002 Forecast

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SoCal Gas natural gas demand and receiving capacity

June 2002 Forecast

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California natural gas supply by source

June 2002 Forecast