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Calif. regulators fear Ariz. pipe project could harm constrained SoCalGas market

California regulators filed a protest notice against North Baja Pipeline LLC, a TC Energy Corp. project that would add compression in La Paz County, Ariz., to send gas to an LNG export terminal planned for Mexico's Pacific Coast.

"The North Baja XPress project, as conceived and justified, will export existing natural gas supplies away from a major and currently constrained major U.S. market" in Southern California, the California Public Utilities Commission contended in a recent Federal Energy Regulatory Commission filing.

It contended that the abbreviated application North Baja filed with FERC fails to discuss "potentially large adverse effects" on Southern California Gas Co.'s Southern Mainline Pipeline serving the Los Angeles Basin and San Diego.

It also faulted the application for failing to disclose the shipper, using shortened review procedures, and for failing to account for greenhouse gas emissions potentially associated with exports.

The North Baja project, pitched to FERC in mid-December 2019, entails installing about 31,900 Dth/d of compression in La Paz County, along with modifications to meter stations on the existing North Baja pipeline to add 495,000 Dth/d of firm delivery to the U.S.-Mexico border.

It would create the capacity to ship feedgas for Sempra LNG LLC and Infraestructura Energetica Nova SAB de CV's proposed Energia Costa Azul export terminal, located at an existing import facility in Baja California, along with other growing market demand. (FERC docket CP20-27)

Declining LNG imports

According to North Baja's application, the project comes as LNG import demand has diminished, and north-to-south flows now predominate.

LNG sendout from the Costa Azul import facility declined to 15 MMcf/d in 2019, down by 24 MMcf/d from the prior five years, according to S&P Global Platts Analytics. In its place, Baja California pipeline imports from the U.S., buoyed by cheaper West Texas basis at the Waha natural gas hub, have made up for less waterborne LNG supply.

The California regulators argued the Southern California market already faces constrained supply due to repeated outages and reduced capacity at other SoCalGas storage fields in the wake of the well failure at the Aliso Canyon underground storage facility.

Since the Aliso Canyon leak, the SoCalGas pipeline network has partially relied on LNG imports from Baja California. Aliso Canyon continues to operate at a reduced capacity of 34 Bcf, roughly 40% of the facility's design capacity of 86 Bcf, following a CPUC capacity increase mandate in July 2018, according to Platts Analytics.

Since then, the CPUC, citing reliability concerns, updated the Aliso Canyon withdrawal protocols in July 2019 and allowed the facility to be used in a more flexible way.

In its filing with FERC, the CPUC said the North Baja project would deliver 495,000 Dth/d south from the interconnection point with El Paso Natural Gas Co. LLC and the adjoining SoCalGas intrastate pipeline served by El Paso, adversely impacting a constrained market in Southern California.

Concerns about southern system

"If an incremental volume of 495,000 Dth/d directly displaced supplies onto the SoCalGas system, the effective capacity of the SoCalGas Southern System would be approximately 730 MMcf/d, down from the 1,210 MMcf/d El Paso is capable of delivering to Ehrenburg, and the 980 MMcf/d most recently available for receipt onto the SoCalGas system," the CPUC filing said.

Proximity and diversity of supply are crucial for SoCalGas to balance pipeline supply and demand, leading to a proactive CPUC that may take a stance on infrastructure projects that could affect Southern California gas supply reliability. However, all the brownfield U.S. LNG export projects have retained LNG import capabilities following contract renegotiation.

In detailing its concerns, the CPUC also noted that the North Baja application concedes that precedent agreement revenues will not fully cover the costs of expansion. The regulators also said the failure to identify the project shipper contributes to concern about potential market power, such as from affiliates. TC Energy said it is reviewing the CPUC filing.

Maya Weber and John Hilfiker are reporters with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.