San Onofre nuclear plant and regional market update

Monday, February 06, 2012

Southern California Edison's San Onofre Nuclear Generation Station Unit 3 (SONGS 3) has removed approximately 1,150-MW of electric generation capacity from the grid since it shut down last Tuesday evening due to steam generator tube leaks. Since SONGS 3 went offline, thermal generation reported by the California ISO has averaged approximately 1,067-MW in additional generation to replace lost nuclear output. BENTEK’s California/Southwest Observer covers the impact on natural gas sendout on the SoCal system, which has jumped 245 MMcf/d compared to the prior seven-day average. Southern California Edison has not provided an estimated timeframe for SONGS 3 to return to service.

With SONGS Unit 2 already down for planned maintenance, constraints on several key pipelines delivering natural gas to the SoCal market mean this outage could have significant implications for the SoCal cash and forward markets, particularly if SONGS 3 stays offline for an extended period of time. Near-term, spreads to SoCal may widen as shippers must cover higher variable costs on alternative routes in order to meet incremental gas demand. High SoCal storage levels will likely play a key role in meeting demand and could potentially provide a near-term price ceiling.

The California/Southwest Observer will provide ongoing analysis on the following market developments:

• Up to 0.5 Bcf/d of incremental natural gas supply may be necessary to serve power demand in the California market to replace SONGS 2 and 3 generation, which could cause SoCal storage to draw down quickly.

• BENTEK’s flow data shows Transwestern and Kern River pipelines already are constrained to flow into SoCal, therefore incremental gas will face the prospect of more expensive variable costs and put pressure on spreads to SoCal.

• The region will lose another 1,247-MW of power generation from mid-March until mid-April when the Palo Verde Unit 3 reactor is shut down for refueling, further tightening electric supply availability.

• The 1,122-MW Diablo Canyon Unit 1 reactor has an outage slated from Apr. 22-May 31, keeping pressure on electricity supplies should the SONGS Unit 3 outage persist.

• SoCal will curtail all receipts from the Transwestern-Needles receipt point as the utility conducts pipeline integrity testing from Apr. 9-May 5, which will limit up to 800 MMcf/d of deliveries.

Follow BENTEK’s California/Southwest Observer and The Nuke Report for the latest updates related to the SONGS 3 outage, the estimated in-service date and the expected impacts on natural gas flows and prices.

For a complete listing of BENTEK’s Observers, please click here.