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Aliso Canyon Update: Understanding the California Natural Gas Leak

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The storage facility – which is located 30 miles outside of Los Angeles – features over 115 wells and accounts for 86 billion cubic feet (bcf) of working natural gas capacity. Given the sheer size and importance of the facility – and the engineering challenge presented by the leak – reliability and environmental concerns have been raised at the state and federal levels. 

To help synthesize the latest developments, we’ve put together a brief operational update, regulatory update and potential impact scenarios: 

Operational Update

Yesterday, the California Division of Oil, Gas and Geothermal Resources (DOGGR) confirmed that the Aliso Canyon natural gas leak has been stopped, the well has been permanently sealed and taken out of service. SoCal has given displaced residents until Feb 25 to transition back to their homes.

Regulatory Update

California State Legislature

California State Senate passed Senate Bill 380 with 40-0 vote on January 27 and it is with the State Assembly for approval, and then sent to the Governor for approval. The Governor cannot veto the bill if it is passed by two-thirds of the Assembly. The major provisions of SB 380 include:

  • An immediate moratorium on natural gas injection into the Aliso Canyon reservoir
  • Restriction on production of gas through 1950s-era wells at Aliso Canyon unless needed for leak response or to ensure energy reliability
  • Requirement that the moratorium and restrictions remain in place until the Division of Oil, Gas & Geothermal Resources (DOGGR) assesses the integrity of wells, evaluates the risk of well failure and requires that wells at extra risk of failure be plugged or capped
  • Before activity is allowed to resume the agency must determine overall risk to the community from the facility is low
  • DOGGR must solicit input from independent experts and the California Public Utilities Commission and California Energy Commission must agree with its findings
  • The Public Utilities Commission must evaluate whether the Aliso Canyon facility can be shut down or its use minimized without affecting regional energy reliability

In addition, there are currently two other proposed bills to address the Aliso Canyon leak. The first bill would designate the state Office of Emergency Services as the lead agency on any future leaks and require the gas company to pay for the leak’s damages with its profits, not ratepayer funds. The utility has said its insurance will cover more than $1 billion in costs. The second bill would require the inspection of all natural gas storage facilities statewide in the next year and then at least once annually thereafter.

Emergency order by Governor Jerry Brown

In his emergency order, the Governor Jerry Brown asked state agencies to assess the viability of the state’s natural gas facilities. Under the Governor’s Emergency Order, various agencies are to assess the long-term viability of the state’s natural gas facilities and the agencies have mentioned that they will be providing the analysis by April. The order also continued the prohibition against injecting any gas into the Aliso Canyon site until third-party experts can determine the safety of the storage wells. 

Federal update

California Senators Dianne Feinstein and Barbara Boxer, have proposed an amendment to energy legislation in the United States Senate which would ask Energy Secretary Ernest Moniz to review the leak at the Aliso Canyon. The amendment would give Moniz and a six-member task force six months to determine whether Aliso Canyon and other gas fields near populated areas should remain open. 

Potential Impact Scenarios 

Looking forward, there are variety of potential impact scenarios:  

  • If the agencies come out in April and suggest that there will be reliability issues, we can see after inspections are conducted, SoCal will be allowed to start filling sometime close to or in Q3 of 2016.
  • The reliability report will supersede Secretary of Energy’s report which will be come out with its recommendations six months after the energy legislation amendment is passed.
  • The closure of the facility at this point doesn’t seem likely as Congressman Sherman has acknowledged the relevance of the facility for reliability. CAISO has also mentioned that need of maintaining Aliso Canyon until a newer storage facility is developed.

Stay tuned to the Direct Energy Business Blog for the latest updates on Alison Canyon. For other natural gas news, please check out the Weekly Energy Market Update

Posted: February 19, 2016

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