PUC Acts to Boost Natural Gas Supply

The California Public Utilities Commission voted Thursday to allow Southern California Gas and other utilities to ship natural gas from Mexico through California pipelines after the fuel is converted from a liquefied state.

The action was among several steps the PUC took Thursday to ensure that the state doesn’t run short of natural gas as demand swells. The commission said it hoped to increase supplies by 500 million cubic feet a day, or about 10% of daily statewide demand, before the winter heating season.

“We’re experiencing the high prices of natural gas constraints today. We don’t have a moment to lose in addressing this threat,” Commissioner Susan Kennedy said at a meeting in San Francisco. “These high prices are hurting residences and businesses of all sizes.”

Some of the PUC’s actions were designed to provide immediate relief. For example, the PUC voted to create “upfront standards” for utilities’ long-term supply contracts that are expected to shorten the lengthy regulatory approval process. The commission also authorized utilities to buy natural gas from new sources, such as a pipeline from the Rocky Mountains.

The liquefied natural gas effort, however, won’t boost natural gas supplies for several years because no LNG facilities yet exist on the West Coast.

In a 3-2 vote, the PUC authorized Sempra Energy and Royal Dutch/Shell Group to create a border point where natural gas, converted from a liquefied state, would move from Mexican to U.S. pipelines. The commission voted against a proposal to delay its vote so the economic and environmental effects could be studied.

The decision also allows San Diego-based Sempra, owner of SoCalGas and San Diego Gas & Electric Co., and other utilities to include fuel shipped from Russia and various producing regions overseas in their long-term supply contracts.

Spurred by high natural gas prices and lagging U.S. production, several companies have been considering building facilities to import liquefied natural gas to California or Baja California. The gas is cooled to a liquid state for shipment on tankers, then processed back into a gaseous state at receiving terminals for transport on pipelines.

But critics contend that the fuel is too volatile and can cause pollution. They point to an explosion in January at an Algerian LNG plant that killed 27 people. A Greenpeace report says LNG releases carbon dioxide that contributes to global warming and is less efficient than fuel sources such as wind and solar energy.

Sempra and Shell have won Mexico’s approval to build a $600-million plant at Costa Azul, about 55 miles south of the border, to process as much as 1 billion cubic feet of liquefied natural gas daily when it opens in 2007.

At least some of that output would go to California, which typically uses 5 billion to 6 billion cubic feet of natural gas daily for generating electricity, heating homes and other uses.

“We’re very pleased with today’s decision because it provides California’s natural gas customers the ability to tap into a significant and competitively priced future source of energy,” Sempra spokesman Art Larson said Thursday.

Sempra has agreed to pay the cost of upgrading infrastructure to link the Mexican supply with pipelines owned by SoCalGas and SDG&E.; However, the company will ask the PUC later for permission to pass on the expense to ratepayers.

Shares of Sempra rose 15 cents to $36.90 on the New York Stock Exchange.