GovReport

On the Future of Government

DOGGR

Newsom Announces Changes to Oil & Gas Laws, New Conservation Director & Oil & Gas Supervisor

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While the focus of the week has been the wind event and PSPS by the utilities, Governor Newsom announced changes to the oil and gas industry on Saturday, Oct. 12.

Newsom signed legislation that prohibits the State from authorizing new oil and gas infrastructure on federally protected lands (AB 342), requires well operators to provide estimates to plug, abandon and decommission wells (SB 551), renamed DOGGR to “Geologic Energy Management Division” (AB 1057), requires the submission of testing data conducted on idle and abandoned wells for publication on the DOGGR’s website (AB 1328), improves the reporting of the chemical composition of leaks from natural gas storage wells (SB 463), and establishes contingency planning for all types of non-floating oil spills (AB 936).

In addition, Newsom appointed David Shabazian as head of the Department of Conservation. Shabazian has been program manager of rural-urban connections strategy for the Sacramento Area Council of Governments since 2007, where he has also served as project manager of water resources and floodplain program management since 2004.

Newsom also appointed Uduak-Joe Ntuk, 40, as Supervisor for Oil & Gas Division. Ntuk has been petroleum administrator for the City of Los Angeles since 2016 and an adjunct faculty member at the California State University, Long Beach Chemical Engineering Department since 2015. He has ties to the oil industry and held several positions at Chevron Corporation from 2006 to 2011.

These changes are in response to Chevron’s oil spill in the Central Valley. As previously reported, we expect the Legislature to hold hearings specific to the oil spill and the potential conflicts of interests that rattled DOGGR earlier in the year.

DOGGR: State Fines Chevron $2.7 Million for Kern County Spill

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California’s Division of Oil, Gas and Geothermal Resources (DOGGR) announced today that it levied a $2.7 million fine on Chevron for illegally allowing releases of large amounts of oil at one of the company’s well sites in the Cymric Oil Field between May and July of 2019.

The size of the civil penalty — the second-largest issued under DOGGR’s new office of enforcement — was attributed to risks created by the leaks, as well as their pervasiveness and the state’s intention of keeping Chevron from benefiting from sales of oil contained in the more than 1.25 million gallons of fluid that, since May, have flowed from the Cymric Oil Field.

DOGGR said the leaks were likely caused by Chevron’s steam injection work near McKittrick. DOGGR noted that the leaks, a historically common phenomenon known as “surface expressions,” became illegal in California in April.

In a statement, Chevron said it was reviewing the state order outlining the penalties.

“Chevron takes very seriously its responsibility to operate safely and in a manner that is protective of public health, the communities where we operate, and the environment. We have made significant progress working with Unified Command to clean up the impacted area, which is nearly complete. It remains our operational goal to prevent seeps consistent with DOGGR’s updated regulations, and we continue to work closely with regulators to address any seeps that occur.”

After the state’s months-long focus on the surface expressions and its dissatisfaction with Chevron’s explanations for what caused them, the fine comes as little surprise. The heads of the state legislative committees that oversee much of California’s oil and gas industry are questioning whether a fine will be effective.

Senator Henry Stern, Chairman of the Senate Natural Resources and Water Committee, said, “I don’t think this fine will change the way Chevron does business. Three million bucks is a drop in the bucket for them. I’m not under any illusion that’s suddenly going to change their behavior overnight. I think we’re going to need a much stronger response from the state.”

Assemblywoman Laura Friedman, Chair of the Assembly Committee on Natural Resources, also questioned the effectiveness of the fine.

“For a company that reports quarterly profits in the billions, I question if a $2.7 million fine is sufficient enough to cause the operator to take all necessary steps to prevent these kinds of disasters. The penalties associated with surface expression regulations and prohibitions are supposed to act as a deterrent for risky behavior. In addition to increasing penalties, we also need to look into what failed on the regulatory side of this issue and strengthen DOGGR’s review process to ensure the formations are stable enough to withstand dangerous steam operations.”

Both committees plan to conduct a joint legislative hearing regarding the spills in the Cymric Oil Field and DOGGR’s work, most likely in December or January, according to Stern’s office.

The leak at the center of DOGGR’s fine began in May and led to the release of about 400,000 gallons of crude into a dry creek bed before finally stopping in August. Since the new regulations went into place, DOGGR has also focused on two other significant spills in the Cymric Oil Field near the town of McKittrick. One involves surface expressions that have continued since 2003, releasing millions of gallons of crude. The other spill is ongoing.  That release began in late August and has spilled more than 184,000 gallons of oil, according to DOGGR.

DOGGR says Chevron will be able to sell more than 7,000 barrels, or some 300,00 gallons, of oil recovered from the spill for about $400,000. The agency also says that for the last 13 years, Chevron’s average annual revenue in California was $3.34 billion.

Chevron can appeal the state’s fine. It’s unclear if the company plans to challenge the penalty.

Senator Stern believes Chevron wants to stop the leaks.

“They’re hungry to be in compliance and try to be the gold standard … of regulated oil companies,” Stern said. “I do think there’s a desire within that company to turn it around.”

CPUC/DOGGR: Update on the SoCal Gas Pipeline Work

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Capacity on the SoCal Gas lines is expected to drop for the foreseeable future. This week SoCal Gas is expected to start working on Line 4000 which extends from East of Barstow to Cajon. The company plans for the line to be out of commission for two months as it makes repairs. Based on the time it is taking to make other repairs, it looks like it may take longer than scheduled.

SoCal Gas has pushed back the estimated return-to-service date for Line 235-2 yet again. The line which runs approximately 50 miles between Victorville to east of Barstow, ruptured on October 1, 2017 and has been closed ever since. The 1957 vintage pipeline vintage was initially planned to reopen in April, but repairs remain difficult. Additional leaks were found in remote locations as the line was being brought back to pressure. As a result, the earliest the line is expected to be operational is mid-October.

A third aging pipeline, Line 3000, has been out of commission or working at reduced pressure since July 2016. Line 3000, which extends about 125 miles Needles on the California-Nevada border to East of Barstow, does not increase system capacity due to the bottleneck created by the outages on lines 235-2 and 4000.

With all three lines at more than 60 years old and in need of repair, SoCal Gas’ pipeline system is running at less than 85 percent of optimum. SoCal Gas believes that all of the lines will be operational by mid- November, but they also thought one of the lines would have been fixed by April, then May then June then August and now October. As the company has found, the re-pressurizing of these lines can lead to additional leaks. Should the repairs drift into the winter months or longer, SoCal Gas will become more dependent on its storage sites as demand for natural gas peaks.

Newsom Tours Chevron Spill, Legislature May Seek Fracking Moratorium

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Governor Newsom said this week (7/24) that he is encouraged by Chevron’s efforts to clean up what has turned into the state’s largest oil spill in decades. About 970,000 gallons have leaked from the ground at an oilfield west of Bakersfield over the last couple of months; about one-third of it is oil and the other two-thirds water.

“I’m seeing progress,” Newsom said on a visit to the site, where the oil and water are contained in a dry desert creek bed. The leaks are known as surface expressions, which can be caused by injecting steam into the ground.

Chevron uses steam injection to extract oil in the Cymric Oil Field about 35 miles West of Bakersfield. The steam softens the crude oil so it can flow more readily. It is a different process from fracking, which breaks up underground layers of rock.

The Company has said the initial leak began May 10 after its crews tried to seal off a damaged and abandoned well. The company said efforts to confirm the source of the original leak and shut it down unleashed higher flows in the weeks after the initial release was discovered.

The State issued Chevron a notice of violation ordering it to stop steam injections around the spill. The Company also increased its production of oil from wells in the area. Both actions are intended to relieve underground pressure that may be forcing the mix of oil and water to the surface.
Newsom told reporters the state would ask Chevron to turn over data so regulators can investigate the cause of the spill. Newsom also vowed to go beyond the State’s already aggressive efforts to curtail the use of fossil fuels and seek a long-term strategy to reduce oil production.

The Bakersfield Californian reported over the weekend that records show Chevron continued to inject steam into the ground at a site about 360 feet from where its crews were working on a well — a combination of activity that experts said probably contributed to the release. Chevron denied that steam played any role in the uncontrolled releases.

CPUC/DOGGR: Commission Changes Withdrawal Rules for Aliso Canyon

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The CPUC this week approved a new withdrawal protocol for SoCal Gas’ Aliso Canyon storage facility. SoCal Gas can now withdraw natural gas from Aliso Canyon as long as it is for improving energy reliability and minimizing price volatility. This is a change from the prior protocol that allowed SoCal Gas’ Aliso Canyon to only be used as an “asset of last resort.”

Under the new protocol, SoCal Gas can withdraw gas from Aliso Canyon if the amount of fuel in the region’s pipelines is low or the amount of gas in two of the utility’s other storage fields is low. This change should help the gas market in the Summer months especially since Aliso Canyon is close to its new storage capacity as SoCal Gas injected into the facility from mid-March through mid-June.

The bad news is that the only way to address the Winter gas market issues is to expand storage or increase gas flowing into California. The change in the protocol did not address storage limits.

In addition, SoCal Gas announced that it would take longer to reopen one of its gas lines. Line 235-2, which runs approximately 50 miles between Victorville to east of Barstow, ruptured on October 1, 2017, and has been closed ever since. The pipeline is a 1957 vintage and appeared close to reopening. However, SoCal Gas announced a delay to August 29 and this is not first delay. The line was first scheduled to re-open in Mid-April, Mid-June, late July and now August 29. Will the gas line reopen on August 29 is anyone’s guess.

This is not the only gas line facing problems. Additionally, two other gas lines, Line 3000 and Line 4000, have reduced capacity. SoCal Gas initially reduced capacity on Line 3000, which extends about 125 miles Needles on the California-Nevada border to East of Barstow, in June of 2016 after inspectors found safety issues. Line 4000 extends from East of Barstow to Cajon has also seen its capacity reduced. All three lines are more than 60 years old and in need of repair. SoCal Gas plans to do upgrades on the other two lines once Line 235-2 is operational. In the meantime, SoCal Gas’ gas line system is running at less than 85 percent of optimum.

Reduced availability of Aliso coupled with limitations on several pipelines has caused gas supplies to be tight in Southern California for years, resulting in gas curtailments to power generators and higher power and gas prices for consumers.

The CPUC said price spikes due to gas shortages last summer caused an $800 million increase in power procurement costs for SCE.

SoCal Gas has four storage fields: Aliso, Honor Rancho, La Goleta and Playa del Rey.

DOGGR/CPUC: SoCal Gas Pipeline Woes Continue

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This week, SoCal Gas announced that it would take longer to reopen one of its gas lines. Line 235-2, which runs approximately 50 miles between Victorville to east of Barstow, ruptured on October 1, 2017 and has been closed ever since. The pipeline is a 1957 vintage and appeared close to reopening. However, additional leaks were found recently, delaying the reopening of the gas line to late July at the earliest.

This is not the only gas line facing problems. Two other gas lines, Line 3000 and Line 4000, have had reduced capacity for over a year now. SoCal Gas initially reduced capacity on Line 3000, which extends about 125 miles Needles on the California-Nevada border to East of Barstow, in June of 2016 after inspectors found safety issues. Line 4000 extends from East of Barstow to Cajon has also seen its capacity reduced. All three lines are more than 60 years old and in need of repair. SoCal Gas plans to do upgrades on the other two lines once Line 235-2 is operational. Notwithstanding the line derations, SoCal Gas has maintained that their system is running at about 85 percent of capacity and maintaining reliability.

The constraints on SoCal Gas’ ability to deliver gas are not limited to the gas lines. Aliso Canyon is still a limited use site as a result of the 2015 catastrophic well failure. The CPUC will only allow SoCal Gas to operate Aliso Canyon at 40% of its original capacity. In addition, SoCal Gas can only call for gas from this storage facility as a last resort.

The good news for SoCal Gas is that Aliso Canyon is nearing its new storage capacity after three months of injection. While Advantage Consulting has not confirmed how the other SoCal Gas’ storage sites are doing, it is believed that SoCal Gas has been bringing those sites close to capacity.

The reduced gas storage and pipeline capacity mean that there may be some limits on gas availability for energy producers – just in time for summer heat.

More News on Aliso Canyon

The CPUC this week discussed its progress in modeling how Southern California might be able to meet its energy needs without the Aliso Canyon storage field. Commission staff noted that multi-state gas demand models will be needed to fully answer the question, since California imports most of its natural gas (87% of California’s natural gas need is imported). Commission staff said it does not expect to complete its analysis until August of 2020.