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News Analysis

Fuel costs drive electric prices, but generators seem perfectly willing to pay a premium for fuel when they're getting top dollar for power.
Fortnightly Magazine - March 1 2001

only with qualifications. "It hasn't been a problem [in the past]. I imagine that there are bottlenecks emerging. ... I'm sure there are portions of the [utility systems] that are full up right now, getting as much gas as they can to the power plants."

But no bottlenecks outside the state? "I know the San Juan lateral is loaded up. You've got BP Amoco and Burlington Resources and everybody else in the San Juan screaming. There has been a huge fight with El Paso for years about access out of the San Juan."

Just look at the numbers, Linden says. They'll tell you the bottleneck story on the long-haul pipelines. "If you look at the basis differential between the way it's been running between San Juan and Topok [at the California border], it's been as high as $4. Why does that happen? It happens because there's a bottleneck there. Every time you see a big basis differential between two points, you know you've got a bottleneck problem."

Still, the rote response of the pipelines appears to be that, regardless of natural gas market volatility in California, it's business as usual for them. Jay Story, director of gas control and transportation services for PG&E Gas Transmission, another of the approximately five major pipelines that carry natural gas to the state line, says that, sure, his pipeline's capacity is typically all taken up these days, but that's nothing unusual. "We're a high load factor pipeline," he says. "We remain pretty close to full year-round." On any given day, Story says, PG&E Gas Transmission can have more requests than the pipeline capacity might allow. "For our pipeline, it's been a way of life for some time."

Whether or not turning down shippers is nothing new, though, the implication is that there's a hunger for new pipeline capacity that needs to be satiated. Pipeline companies, therefore, conceivably should be eager to meet that need, given the profit potential. In spite of the bottleneck denials, are they enhancing their systems? Yes.

On Jan. 2, PG&E Gas Transmission Northwest, another of the major pipelines going to California, launched an open season for new capacity on its mainline system, offering up an additional 200 Mdth per day for service Nov. 1, 2002. Previously, in November, PG&E Corp. and the international subsidiary of Sempra Energy announced that they have signed precedent agreements for over half of the capacity on the proposed North Baja Pipeline Project, and that they are going full-steam ahead to obtain permits to build the 215-mile pipeline. "We're moving ahead and hope to have that online in 2002," says Sandra McDonough, vice president, external affairs for PG&E National Energy Group. "We're doing everything we can do to make that happen."

El Paso, meanwhile, is working on system enhancements of its own. In February 2000, the company purchased All American pipeline, an abandoned oil line. All American was a particularly attractive investment because, for the most part, it happens to parallel El Paso's South mainline. In fact, El Paso says that it bought the pipeline not necessarily for