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Aliso Canyon – A Year Later

October 27, 2016 | By Annalisa Kraft

It could be said the Aliso Canyon gas storage leak was the leak that launched a thousand lawsuits…or limitations…or relocations. Aftershocks of the leak continue to rattle the gas storage industry.

While the latest lawsuit count only amounts to 180 lawsuits…so far, and there aren’t a thousand new changes in gas storage regulation, and only 44 recommendations from a White House task force and many more at the California level, the Aliso Canyon incident is a remarkable tale of how one storage facility shutdown can impact an entire market area. Over 8,000 families were relocated. And The California Air Resource Board announced on Oct. 21 its estimate of total methane emitted was 109,000 metric tons.

One year after the Aliso Canyon gas storage facility began leaking methane the facility still can’t accept injections and as of Oct. 26 its owner Southern California Gas Company (SoCalGas) says the facility is still weeks or months away from coming back online. Since June, SoCalGas can withdraw 5 Bcf over a two week period as allowed by the California Public Utilities Commission but can’t inject.

In the year since, California has enacted the most stringent gas storage regulation legislation in the nation with more proposed at the state and local level. The leak even prompted President Obama to convene the aforementioned task force on gas storage safety which released its findings last week.

Costs to the company

After the Oct. 23, 2015 leak began it took the company until February 17, 2016 to plug the well and staunch the emission of methane. Up until the plugging of the well at fault the Aliso Canyon facility emitted 90,000 metric tons of methane and the root cause of the leak was still unknown. In an Oct. 19 SoCalGas update it stated it may take up to the middle of 2017 to find out why the leak occurred.

On the Sempra Aug. 4 earnings call the company revised upward its estimate of the costs related to the Aliso Canyon gas storage methane leak to $717 million. The company has recorded $679 million of that as an insurance receivable. The new estimate is more than double the $332 million cost estimate reported to the SEC earlier this year.

On its May earnings call in May the company reported the Aliso expenses had already cost them $665 million. And those 180 lawsuits’ damages, restitution or civil or criminal fines or penalties aren’t covered in the Aug. 4 estimate. Including those costs could very well push the company past its $1 billion dollars of insurance available to cover the incident’s aftermath.

A push to 'green'

The leak, actually visible from space, may have pushed an already ‘green’ California much further along the green path as the L.A. City Council commissioned a study from the city’s Department of Water and Power to determine just what L.A. would have to do to be 100% clean energy powered. On the state level California is committed to at least 50% renewables by 2030.

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PointLogic storage analyst Callie Kolbe said, “Even though Aliso was not the only storage capacity pulled offline in the region this summer (McDonald Island which serves as PG&E’s largest underground storage with a maximum working gas capacity of 82 Bcf had a leak this past July), spot prices in SoCal did not necessarily peak to levels that would convey stress in the region. One of the reasons as to why this was the case is the rapid growth in California’s usage of renewables.”

Citing an EIA study of California ISO utility scale solar generation Kolbe said, “The study shows that solar photovoltaic capacity has increased by 1.4 gigawatts (27%) between June 2015 and June 2016. This increase in utility-scale solar capacity has reduced the need for summer thermal generation in CAISO. Between this growth in solar, a good hydro year in the region and accessibility to inter-regional imports prices really didn’t indicate stress despite the fact that the loss of Aliso Canyon and McDonald Island was a material change in the way storage is operated.”

But she said, as have so many others of the ‘when the wind don’t blow and the sun don’t shine’ contingent, “going into this winter, greater reliance on renewable resources also means that when the renewable resource is unavailable the potential need exists for natural gas fired generation to be dispatched.”

But Aliso also gave environmentalists more fuel, so to speak, to counter industry arguments that gas is a clean bridge fuel and necessary for renewable reliability. earthworks, the Environmnetal Defense Fund and other groups released numerous calls to action against natural gas as well as dramatic Youtube videos shot with infrared cameras.

One of the most dramatic was actually released by one of the law firms engaged in litigation against SoCalGas. The case against SoCalGas attracted high profile legal names such as Erin Brockovich and Robert F. Kennedy, Jr. to rail against the company.

Source:Morgan & Morgan http://www.porterranchlawsuit.com/

Industry reaction

On the bright side, the Aliso Canyon event has advanced industry best practices. American Petroleum Institute spokesperson Michael Tadeo told PointLogic via email, “Safety is our core value throughout our entire industry which is why our industry developed API recommended practices 1170 and 1171 to specifically address design, construction and operation of underground natural gas storage operations. In these recommendations, it is clear that there is a recognition of the critical role that underground storage of natural gas plays in meeting the nation’s demands for clean and affordable natural gas.”

INGAA spokesperson Catherine Landry agreed, saying the trade group had advocated for PHMSA to regulate gas storage even before Aliso happened and like API had also worked on the consensus standards 1170 and 1171, “We also supported Congress’ move to do so as part of the reauthorization of the Pipeline Safety Act last year.”

Landry added, “INGAA also was very involved with development of the consensus standards 1170 and 1171, which PHMSA will use as a basis for its natural gas storage regulations. These consensus standards were developed by academic, government and industry experts, and deal with all aspects of storage integrity in all three kinds of storage facility (salt cavern, aquifer, depleted well).” These regulations are expected to be issued later this year or in early 2017.

Ongoing reliability worries

Until all 114 wells’ test results have been approved by California’s Division of Oil, Gas and Geothermal Resources (DOGGR) and the agency conducts a public hearing the Sempra Energy subsidiary cannot inject any gas. As of SoCalGas’ latest update on Oct. 24 only 28 wells have passed safety tests, with 81 still not operating and five awaiting test results.

Southern California reliability concerns have been of interest and Kolbe said, “Historically inventory levels in the Pacific region fills to about 350 Bcf by the end of the summer and then inventory is drawn back down by about 150 Bcf throughout the Winter to 200 Bcf. The current level is at 325 Bcf (as of last week’s EIA report for the week end 10/14) which is 25 Bcf lower than typical end of injection season levels and will likely not reach historical norms by the end of October. This trend has been visible since last year and accelerated this summer.”

But Colbe said the trend of lower inventory levels truly began last December. It was then, she said, “inventory levels in the Pacific region began to trend under the prior year and by July of this year inventory levels in the region began to come in below the prior five year average. That gap is related to not being able to fill Aliso Canyon.”

“Certainly, one of the things to consider going into this winter is that storage in the region will have to continue to operate differently than it has in the past,” Kolbe stated.

Pacific Region Inventories

Source: PointLogic Energy

A California multi-agency coalition, both state and local including the California Public Utilities Commission, SoCalGas, CAISO, LA’s Department of Water and Power and the California Energy Commission, conducted several winter scenario analyses finding under normal weather conditions Southern California could totter along without Aliso Canyon but pipeline interruptions or extreme weather could take reserve margins below the ability to meet demand.

If that were to happen the multi-agency group offered some options: Sempra’s international division could help out with imported LNG from its Costa Azul, Mexico facility; gas production in the state could be ratcheted up; and consumers could be encouraged to reduce demand on a voluntary basis.

EIA even started running a daily report on Southern California and the agency has underlined Aliso’s importance to the region, “Its 86 billion cubic feet of working natural gas capacity accounts for about two-thirds of SoCalGas' natural gas storage capacity, with deliverability estimated at 1.9 billion cubic feet per day (Bcf/d). Although the leaking well has been plugged, continuing limitations on the use of Aliso Canyon change the way both electricity and natural gas can be managed to meet energy demand in Southern California.”

Southern California Gas

Source: EIA Oct. 26

In Conclusion

Why Aliso Canyon happened we might not know until more than a year after the offending well was capped or even later. On Oct. 18, INGAA president and CEO Don Santa responded to the White House Task Force gas storage report saying a top concern was the report was completed before Sempra’s root cause analysis was finished.

A year after the incident, as residents return to nearby Porter Ranch and reliability concerns begin to diminish, Aliso has made its mark on the industry regarding both safety practices and as a cautionary tale environmentalists are using to push renewable energy sources. Stay tuned to Get the Point and other featured news articles as PointLogic continues to monitor the impact of Aliso Canyon on regional gas storage and the ability to meet natural gas demand in the SoCal market area.

The Natural Gas Next agenda and registration information can be found here.

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