Kenneth L. Beckman

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The Southwest Region Natural Gas Supply Demand
Dynamic
Kenneth L. Beckman International Gas Consulting,
Inc. Federal Energy Regulatory
Commission Phoenix, Arizona August 26, 2003
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Southwest U.S. Natural Gas Supply Overview
Existing Infrastructure

• Southwest U.S. Southern California, Southern
  Nevada, New Mexico, Arizona, and West Texas.
  This presentation will focus on Arizona.
• Multiple natural gas pipelines exist to transport
  gas from the Permian Basin, the San Juan Basin,
  and the Rocky Mountain production area to the
  markets in the Southwest U.S.
• Numerous underground natural gas storage
  facilities help augment the pipelines flowing
  gas deliverability when market demand increases.
• Most of these storage facilities exist in two
  general areas 1) the production area in West
  Texas and 2) the market areas in California.

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The Southwest Region of the United States
Nevada
California
New Mexico
Arizona
Texas
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The Southwest Region of the United States
General Gas Flow Directions
Nevada
California
New Mexico
Arizona
Texas
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Planned and Existing Natural Gas Storage
Facilities in the Southwest Region of the United
States
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Southwest U.S. Natural Gas Supply Overview
Arizona and New Mexico Gas Bypass

• The major market in the Southwest U.S. has
  historically been California.
• Gas has traditionally passed through New Mexico
  and Arizona to supply the demand in California.
• Growth in the Las Vegas, Phoenix/Tucson, and
  Albuquerque areas has resulted in substantial
  gas demand growth.
• The East of California customers have for the
  most part been Full Requirements Customers, now
  evolving to Firm Shippers on El Paso.
• The rising demand in these gas markets is
  increasing the conflict for the supply of
  available gas moving through the regions
  pipelines.

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Arizona 2002 Incoming and Outgoing Pipeline
Capacities
Total Incoming 5,924 Total Outgoing 5,972
Nevada
294 MMcf/d to Nevada
California
New Mexico
Arizona
5,417 MMcf/d
Texas
5,924 MMcf/d
261 MMcf/d to Mexico
Source EIA State Border Crossing Database, 2003
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Arizona 2002 Average Daily Gas Consumption, by
Sector
Residential 98 MMcf/d Commercial 90
MMcf/d Industrial 36 MMcf/d Electric
Gen 343 MMcf/d Total 566
MMcf/d Several months of data missing from the
Industrial Sector for 2002
Nevada
294 MMcf/d to Nevada
California
New Mexico
Arizona
5,417 MMcf/d
Texas
5,924 MMcf/d
261 MMcf/d to Mexico
Source EIA Natural Gas Monthly, July 2003
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Southwest U.S. Natural Gas Supply Overview
Arizonas Gas Demand Plight

• Using historical growth rates and projected
  electrical demand, Arizona can expect to see an
  approximate gas demand increase of 4.5 per year
  through 2007.
• Using these growth projections, the average daily
  demand for Arizona in for the month of February
  (the high usage month) goes from 712 MMBtu/d in
  2002 to 845 MMBtu/d in 2007.
• Apply representative load profiles to the
  projections for each of the consuming sectors,
  the total daily gas demand for Arizona in 2007
  spikes to over 1.0 Bcf/d on several days during
  the year.

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Source EIA Natural Gas Monthly, July 2003
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Southwest U.S. Natural Gas Supply Overview
Arizonas Gas Supply Solution

• Commodity price competition between California
  and the EofC shippers will continue to put
  pressure on low load factor capacity retention.
• IGCs estimate suggests that at least 300,000
  Mcf/d of 2007 peak demand will be at a load
  factor of less than 15.
• New pipelines and pipeline expansions into
  Arizona could mitigate some of the anticipated
  increase in gas demand but must provide low load
  factor or high swing services which equates to
  high cost line pack service without system or
  customer storage support.
• To generate the most efficient configuration,
  either increased pipeline capacity or retained
  existing capacity must be combined with storage
  to produce a result that will be palatable to the
  Arizona gas consumers.
• Clearly, new gas storage facilities can mitigate
  much of the anticipated increase in low load
  factor gas demand.

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Southwest U.S. Natural Gas Supply Overview
Arizonas Gas Supply Solution

• Alternatives to new local storage development
  include displacement service from California
  storage including SoCalGas, PGE, Lodi, Wild
  Goose, and other new storage developments.
  Secondarily, consumers down stream from the
  Arizona markets willing to fuel switch and sell
  gas in transit to Arizona consumers can provide
  similar service.
• West Texas storage also provides forward haul
  service supporting load following intraday
  services, supply management, and load shaping as
  well as peak day supply shortfall coverage.
• All of these service offerings require acceptance
  of some risk or constant management, and none are
  pipeline service offerings, but all have price
  ceilings due to the potential LDC storage
  offerings as competitive services and the cost of
  low load factor capacity.
• To that end, inducements will need to be made to
  spur gas storage development in the Arizona
  market area.

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