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Calif. gas storage rules may prompt re-contracting, Kinder Morgan exec says


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Calif. gas storage rules may prompt re-contracting, Kinder Morgan exec says

Underground gas storage rules in California could require contract changes and cut into the amount of gas that operators can readily access, according to a Kinder Morgan Inc. executive.

"In our estimate, it's going to decrease deliverability around 35%," Will Brown, Kinder Morgan's vice president of business development, said at the LDC Gas Forums conference in Colorado. "In light of all this, we believe that the California utilities should review their … deliverability requirements to meet their peak demands."

When the California Department of Conservation proposed the requirements in May in response to a massive leak from Southern California Gas Co.'s Aliso Canyon underground storage field, the agency said the standards were intended to ensure that a single point of failure cannot cause an overall well breach and leak.

Brown said he thinks this means storage well operators ultimately will have to install additional barriers within wells, which would have the consequence of limiting the amount of gas that can be drawn up at a time. "[Operators] are going have to change their services to recognize what their fields can actually do now," Brown said Oct. 17 on the sidelines of the event. "They're going to have to go back out to the marketplace and let the marketplace know that they can't do what they said they were going to do. They might have to re-contract."

Brown said he expects that storage operators will need to work with their customers to see if they can operate with less or whether expansions might be in order.

"For us, if it was occurring on our pipelines, essentially what we would do is get all of our customers together and say: 'Look, this is the challenges that we have. I know that you've been used to having this amount of deliverability. We can only do this amount of deliverability for X, Y and Z,'" Brown said. "What we would also do is we'd say, 'Look, if we still desire this higher deliverability, then we can entertain expansion projects and things like that to maintain that deliverability.'"

As companies begin complying with new requirements, they may have opportunities to upgrade their infrastructure, Eric Kuhle, a manager with ICF International's energy advisory group, said during an Oct. 17 panel discussion. Storage facilities contain a lot of aging infrastructure that could be ripe for replacement and upgrade, Kuhle said, noting that this may afford operators with opportunities for enhancing their systems.