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The Latest with Aliso Canyon: California SB 380 and Price Impact

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Last week, California Senate Bill 380 – a natural gas storage moratorium – was signed into law by Governor Jerry Brown. As it contained an urgency provision, the bill took effect on May 10, 2016.

The legislation maintains the ban on natural gas injections at the Aliso Canyon gas storage facility until specified criteria – including the testing of wells – are met. It also requires state regulators to complete a safety review and determine if Aliso Canyon should be permanently closed. Additionally, the bill directs the California Public Utilities Commission (CPUC) to evaluate, using the best available data, how much working gas is currently required at Aliso Canyon to ensure safety, reliability and reasonable rates for customers. 

Key Highlights

Here are some of the bill’s major highlights: 

  • Requires the supervisor to continue prohibiting the Southern California Gas Company (SoCalGas) from injecting gas into the Aliso Canyon gas storage facility until the safety review is completed and the supervisor makes a variety of determinations

  • Establishes required steps for the safety review to ensure external and internal well integrity

  • Prior to the completion of the safety review, limits the production of natural gas to wells that have completed testing and remediation unless insufficient production capacity is available

  • Requires the Division of Oil, Gas & Geothermal Resources (DOGGR) to post all testing, safety review, compliance status and remediation requirements on its website in a timely manner

  • Requires the CPUC, no later than July 1, 2017, to open a proceeding to determine the feasibility of diminishing or eliminating the use of the Aliso Canyon while maintaining energy reliability in the region

  • Requires the CPUC to consult with the California Energy Commission (CEC), Independent System Operator (ISO), locally public owned utilities, DOGGR, affected balancing authorities and other relevant government entities prior to making its determination

  • Requires the CPUC to publish a report within 30 days of enactment of this bill regarding gas production at the facility

  • Sunsets the provisions of this bill on January 1, 2021

Price Outlook 

So, what’s the impact on natural gas prices? This is neutral to bullish short term, but bullish long term for natural gas prices in Southern California. Prices will most likely stay supported due to summer heat and the resumption of storage injection at Aliso Canyon later this summer. Long term, the expectation is that storage would not be full this winter, which is bullish for prices.

What’s Next? 

The California Senate is also currently looking at Senate Bill 887, which is one of several bills in a comprehensive package to address natural gas well safety and reform well standards at storage facilities across California. It passed out of a Senate committee in March. 

Stay tuned to the Direct Energy Business Blog for the latest Aliso Canyon updates. To learn how a team of professionals can help guide your business through the natural gas market, visit our GasPortfolio page.

Posted: May 19, 2016

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