October 2, 2008

Sempra Utilities Implement FAR; SoCal Citygate Index Debuts

Sempra Energy's utility overhaul of the Southern California natural gas transmission pipeline and storage system with its new firm access rights (FAR) was implemented late last month. And while experts agree that it will take several months for the market to make a complete transition to the new system, trading liquidity and volume were promising at the delivery location, providing ample data for NGI to debut its new SoCal Citygate price index on Oct. 1.

The new system is aimed at providing more flexibility and reliability in the region. Formerly only end-user customers could hold transmission rights on the Southern California Gas (SoCalGas) system, but now any party (end-user; wholesale customer; SoCalGas and SDG&E gas-buying units; California gas producers; marketers; core aggregators or energy service providers; storage customers; and other creditworthy parties) can pick up firm rights, similar to the way it is done on the Pacific Gas & Electric (PG&E) system.

Sempra Energy director for energy market supply and capacity products Rodger Schwecke, told NGI he thinks the market was as prepared as it could be for the transition and the majority of the customers were "very pleased," although he acknowledged some individual customers may be unhappy and will have to get used to the new operations.

A major generator in Southern California questioned the need for the extensiveness of the changes; he questions who is benefiting the most -- Sempra shareholders or utility customers -- and whether it would have been better to leave the system more or less the way it was. Schwecke disagreed, noting a "few start-up bumps," but with a "more seasoned operations now, things are working."

In response to the creation of the new system, NGI formed a new SoCal Citygate index, which debuted in its daily and bidweek publications dated Oct. 1. If volume and number of deals utilized by NGI for the October bidweek are any indication, liquidity was not a problem at the new point. After experiencing no trading volume Wednesday of last week (Sept. 24) on the first day of October Bidweek, SoCal Citygate activity ramped up on the following Thursday and Friday to provide a wealth of data from which NGI could use to calculate an index. In its Bidweek Survey dated Oct. 1, NGI published a SoCal Citygate pricing point with an average of $5.59 and a range of $5.17 to $5.85. Those prices were based on 38 individual deals comprising a volume of 180,000 MMBtu/d.

By comparison, NGI's Southern California Border index, which is commonly used as the basis for supply contracts to price gas at the California/Arizona border, averaged $5.67 for October, with a range from $5.11 to $6.12, 121 individual deals and a volume of 641,000 MMBtu/d. Several sources were surprised that the border index for October was 8 cents higher than at the citygate when most folks were looking for the citygate to trade at about a nickel premium. Most sources agreed that this apparent pricing anomaly was mainly the result of the timing of the deal making this month and that a normal pricing relationship where the citygate trades at a premium to the border would likely develop over time.

"It (the SoCal Citygate) will take some time to get going," said a Calgary-based producer, who added that he saw a range of $5.63-85 posted on IntercontinentalExchange Thursday (Sept. 25). His company is going to wait a while; he said he would do Southern California border deals for October "and then maybe jump in" the citygate market in daily trading during the month. He said the industry should expect further growth at the SoCal Citygate in the following months.

SoCalGas has billed the new pricing point as eventually being the equivalent of PG&E's well established citygate in Northern California. From what he has seen so far, Schwecke said that is still his expectation. For a copy of the entire article, visit intelligencepress.com.

About Intelligence Press

Intelligence Press Inc., (IPI) is an independent publishing company serving the energy industry since 1981 with leading news and price survey reports for the natural gas market in its publications: Natural Gas Intelligence, Daily Gas Price Index, Weekly Gas Price Index and Power Market Today.

The publisher offers real-time news on natural gas and power market developments at http://intelligencepress.com. Additionally, Intelligence Press provides historical price data, publishes natural gas infrastructure, storage maps and glossaries. IPI also hosts GasMart, www.gasmart.com for the natural gas industry.