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Electricity Shortage in California: Issues for Petroleum and Natural Gas Supply |
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1. SummaryIndustry electric reliability organizations, the California Energy Commission, and the California Independent System Operator, expect California to be subject to rotating electricity outages in the summer of 2001 during the peak afternoon demand hours. These outages are expected to affect almost all sectors of the State's economy, including crude oil and natural gas producers, petroleum refineries, and pipelines. This report addresses the potential impact of rotating electrical outages on petroleum product and natural gas supply in California. Because the regulatory environment is still constantly changing, the impacts on supply will change as well. However, we try to convey the potential severity of the problem and identify those areas of greatest concern. This analysis is presented in five parts, covering electricity, petroleum refineries, refinery outside services, the historical response of market prices to refinery disruptions, and natural gas. |
For the summer of 2001 in California, reliability assessments of the electricity supply and demand conditions likely to prevail have been made by industry reliability organizations, the California Energy Commission, and the California Independent System Operator. These sources agree that electricity demand will exceed supply capability within California this summer and rotating electrical outages will be required. The estimates of electricity outages in California during the summer of 2001 (June 1 through September 30) range from a low of 55 hours to a high of 700 hours. The estimates of involuntary peak demand reduction during electrical outages range from 1,825 megawatts (MW) to as high as 5,500 MW. One of the significant uncertainties in these projections of electricity outages is the amount of electricity demand reduction that is either voluntary or motivated by high electricity prices.
Until early this year California refineries were considered exempt from rotating outages because they are connected to the electricity grid at the transmission voltage level rather than the lower distribution voltage level and were not included in rotating outage procedures by the California Public Utilities Commission (CPUC). In April 2001, the CPUC ruled that utilities must include transmission level customers in rotating outages.
The potential impact of rotating electrical outages on individual California refineries ranges from minimal to severe. About one-fourth of the refining capacity in California is protected from electrical outages either because of sufficient cogeneration capacity within the refinery or because it is in an electric utility service area that is not expected to be subject to rotating electrical outages (e.g., Los Angeles Department of Water and Power). The rest of the refineries could be forced to either reduce operating rates or shut down completely during an electricity outage if it should affect their supply of electricity.
About 40 percent of the California refining capacity has some cogeneration capabilities, but not enough to keep operating at full rates. Processing rates at these refineries would need to be reduced by up to 30 percent or selected units shut down in order to continue operating during an electrical outage. Returning to full production can take up to several days. Consequently, the period of reduced production will be longer than the period of the electrical outage.
Finally, up to 27 percent of the California refining capacity is expected to be forced to shut down completely during a rotating electrical outage should it occur in their block. It takes a refinery 1 to 2 weeks to return to full operating rates following a forced emergency shutdown. If electricity outages were to hit one of these refineries frequently, the refinery might choose to remain down for extended periods of time rather than undergo the high costs of repeated emergency shutdowns and restarts.
The refinery and petroleum product supply analysis in this report is based on a mail survey conducted by the California Energy Commission in early May 2001, with a follow-up telephone survey by the Energy Information Administration. The survey covered 13 of the 24 operating California refineries, which represent about 92 percent of the crude oil distillation capacity and over 97 percent of the gasoline and diesel fuel production capacity in the State.
Refineries are also indirectly exposed to forced processing rate reductions and even complete shutdowns from disruption of services outside the refinery. Services that could require a refinery to reduce operating rates if disrupted include crude oil supply, product pipelines, railroad tank car movements, cooling water supply, waste water treatment, alkylation acid supply and disposal, and hydrogen supply. If disruptions to these services are frequent or prolonged, a refinery could be forced to shut down.
Although we cannot predict the petroleum product price impacts of rotating electricity outages in California this summer, possible loss of production from California refineries could increase petroleum product prices. The size of the price increase is dependent on numerous factors that include the severity and length of the electricity outage.
Past disruptions to California's refinery operations resulted in price spikes ranging from 7 to 52 cents per gallon. The price spikes have varied considerably because of differences in the number, magnitude, and expected duration of the refinery disruptions and the condition of the market at that time. Three important factors that have historically affected the size and duration of price spikes are:
The outlook for natural gas in California this summer is for continued strong demand and high gas acquisition costs due to existing constraints on the capacity to receive natural gas shipments from outside the State. Electricity outages should not significantly affect the gas supply system within California. Only one compressor station in the intrastate pipeline system operates with electricity and electricity is not typically needed for withdrawals of gas from storage. Electrical outages will result in additional costs to natural gas producers, processors, pipelines and storage operators. There may also be some loss of California gas production, particularly gas recovered from enhanced oil recovery projects in southern California.
File last modified: June 12, 2001.
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