Aliso Canyon Gas Leak Impacts California Energy Markets

A natural gas leak at the underground storage well at Southern California Gas Company’s (SoCal Gas) Aliso Canyon underground storage facility northwest of Los Angeles has continued uninterrupted since October 2015, despite efforts to plug it. SoCal Gas is attempting to drill a relief well that will likely be completed in late February. On January 6th, Governor Jerry Brown issued a State of Emergency, which allowed state resources to be utilized in attempting to stop the ongoing leak.

Here’s an update on how the state is addressing the leak and how it’s impacting California energy markets. 

The Aliso Canyon facility is a crucial regional storage facility and is comprised of depleted oil wells from the 1950s that were converted in the 1970s to a natural gas storage reservoir. At 86 Bcf, Aliso Canyon is the second largest depleted reservoir storage facility in the U.S. and is one of four storage fields in SoCal Gas’s territory; totaling 63 percent of SoCal Gas’s total storage capacity of 136 Bcf.

SoCal Gas recently disclosed that it estimates it has reduced inventories to near 30 Bcf in Aliso Canyon. As a regional storage facility, Aliso Canyon serves not just commercial and residential heating load demand, but serves as a crucial supply source for gas fired power generation in southern California.

Aliso Canyon Relief Well Efforts and Expectation

SoCal Gas has taken aggressive measures to relieve pressure in the well to reduce the amount of gas leaking. To date such actions have included:

• On Dec. 4, SoCal Gas commissioned a relief well to be drilled to a depth of 8,000 feet that will intercept the existing well so it can be sealed off with cement.
• A second relief well is being drilled in case the first well fails. Both relief wells will not be ready until February or March.
• SoCal Gas has been drawing gas solely from Aliso Canyon and preserving storage in other facilities. The current balance in Aliso canyon is near 30 Bcf. There is no precise data of the balance between natural gas that has escaped versus what has been withdrawn to meet system demand.

Implications Going Forward

The implications for SoCal Gas prices going forward are still uncertain. Up to this point, a number of lingering questions are keeping SoCal Gas City Gate prices firm through the winter of 2017. Such questions include:

• Can SoCal Gas fix the leak and restore the integrity of Aliso Canyon?
• Can SoCal Gas identify whose gas has leaked from Aliso Canyon? Core gas, storage holders, others?
• How will the cost of escaped gas be accounted for and allocated?

It’s clear that Aliso Canyon will face increased scrutiny going forward. State Senator Fran Pavley has introduced three pieces of legislation to institute several new requirements.

SB 875: Creates a moratorium on any new injections into Aliso Canyon until state officials and an outside agency inspect Aliso Canyon and certify that all the wells do not pose a public health hazard.

SB 876: Designates the California Governor’s Office of Emergency Services as the lead agency on any future leak and requires SoCal Gas to cover costs of the leak from its income/insurance and not rate payer funds.

SB 877: Requires the annual inspection of all gas storage facilities by next year and annual inspections going forward.

Constellation is working diligently with SoCal Gas to assist the utility in managing its gas supply requirements both in the retail and wholesale markets. 

Customers can contact West Regional Vice President, Jay Cattermole, at 925-552-9604 or Jay.Cattermole@constellation.com to assess any impact on their gas budgets for the open portion of existing contracts.