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I am going to include the Wall Street Article snopercod linked to, it tells a very different story to me!

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Natural-Gas Companies Find Unexpected Lift in California: Business/Economy News Keywords: CALIFORNIA POWER CRISIS,GAS PIPELINES,OCCIDENTAL PETROLEUM,ANADARKO,EL PASO NATURAL GAS,ENRON
Source: Wall Street Journal
Published: February 7, 2001 Author: Chip Cummins, WSJ Staff Reporter
Posted on 02/10/2001 09:11:50 PST by snopercod

Last quarter, Anadarko Petroleum Corp., a Houston oil-and-gas concern, discovered an unexpected bonus from last year's acquisition of rival Union Pacific Resources Group Inc.

The purchase, it turns out, included commitments to transport natural gas along a pipeline running from the Rocky Mountains into California. For years, those contracts weren't worth much. But late last year natural-gas prices skyrocketed, especially for gas delivered to California.

Thanks to its hold on precious space in one of a handful of pipelines into the state, Anadarko booked about $135 million in extra profit in the fourth quarter. It may see more in the first quarter.

Call it a California bonanza for natural-gas companies. While wholesale natural-gas prices have eased in some parts of the country such as in West Texas -- where prices are hovering around $5 to $6 per thousand cubic feet -- the gas can fetch twice as much if it is delivered in California. Natural gas was recently changing hands at as much as $10 to $15 per thousand cubic feet at Topock, Ariz., a pricing hub on the California border.

Regional gas prices often fluctuate because of unusual weather or pipeline disruptions. But California's gas premium has been remarkable for how wide it has grown and how long it has lingered. [Commodities]

"It's a pretty major change in market dynamics," says Art Gelber, principal at Gelber & Associates, a Houston energy-consulting and asset-resources firm. The simple explanation for the difference: Natural-gas demand continues to outstrip the state's own modest production, and pipeline capacity for out-of-state gas hasn't kept up.

According to the California Energy Commission, the state produced just 16% of the gas it consumed in 1999, the most recent year for which figures are available. Of the nearly 5.15 billion cubic feet of gas a day California imported, almost half came from the Southwest, an additional 28% came from Canada and 10% from the Rocky Mountain states. To get that gas from the well to users, gas marketers buy up capacity in a limited number of California-bound pipelines. With a shortage of pipeline capacity, transportation costs have climbed and are passed along to end users.

California's pain has turned into unexpected gain for a handful of companies. Occidental Petroleum Corp., a big California gas producer, is finding its gas is suddenly much more valuable than it was just a few months ago. In a recent conference call with analysts, the company noted that prices in California have been more than $3 higher per thousand cubic feet of gas than elsewhere in the country, which the company said will be reflected in the first-quarter earnings.

Both Occidental and Anadarko have spent time explaining the unusual California gains to Wall Street, and any windfalls this quarter are likely already priced into their shares, analysts say. In 4 p.m. composite trading on the New York Stock Exchange Tuesday, Occidental rose 20 cents to $23.62 while Anadarko rose $2.05 to $63.45.

Considering the companies' diverse oil-and-gas portfolios, California's recent volatility wouldn't likely move stock prices much anyway. But the experiences of Occidental and Anadarko in the state highlight what unforeseen surprises can pop up in such an unbalanced commodity market.

California is serviced by four major pipelines. Transwestern Pipeline Co., a subsidiary of Enron Corp., operates a line from West Texas into Southern California; El Paso Corp.'s El Paso Natural Gas Co. runs another pipeline largely parallel to Transwestern; PG&E Corp.'s PG&E Gas Transmission Co. brings gas down from Canada; and Williams Co.'s Kern River pipeline brings gas in from the Rocky Mountains.

For years, the contracts on the Kern River line and other pipelines that Anadarko inherited from Union Pacific were money losers as transportation rights into California traded at a discount. "There was plenty of gas going into California and California didn't need any more," says David Larson, Anadarko's manager of investor relations. But by the end of last year, the contracts were soaring in value.

With California gas consumption ballooning to meet soaring electricity-generation demand, the state's pipelines filled up quickly. Normally, other suppliers would redirect gas to places where the price was highest, and the situation would work itself out. But capacity is so limited that producers simply can't get more gas to California.

In its complicated contractual agreements involving a handful of gas marketers, Anadarko was able to realize big gains, in essence agreeing to transport other producers' gas into California. Anadarko's contracts lay out fixed rates for slots in the pipelines, but the company can pocket gains if market rates for the transportation rise above the fixed rates. Anadarko booked the fourth-quarter gain by valuing its contracts at current market prices, called marking to market.

The contracts stretch out over several years and with rates still volatile, Anadarko could book more profit should the market price of the contracts continue to soar. Mr. Larson says the contracts could add $10 million to $20 million to the company's bottom line in the current quarter, though their value could just as easily fall, resulting in a charge.

Meanwhile, Occidental, based in Los Angeles, produces and markets a little more than 300 million cubic feet of natural gas a day in California. The higher prices that gas is currently fetching there is likely to show up on its bottom line this quarter.

Occidental's Elk Hills field is producing at about 10% above its stated capacity, says John Allen, general manager for the operation, about 15 miles west of Bakersfield in south-central California.

[snip]

-- Enza Tedesco contributed to this article.

Write to Chip Cummins at chip.cummins@wsj.com

I thought this ought to be right here since a lot of people don't look at the Links and you can't reactivate threads this old!

From the WSJ story:

With California gas consumption ballooning to meet soaring electricity-generation demand, the state's pipelines filled up quickly. Normally, other suppliers would redirect gas to places where the price was highest, and the situation would work itself out. But capacity is so limited that producers simply can't get more gas to California.

Supply and demand capitalism at work. The supply and demand were there, but the ability to allow the supply meet the demand was not. I can imagine a pincer situation occurred in company boardrooms: Raise prices to take advantage of the demand and risk government court action to penalize "price gouging", or have to face angry stockholders for failing to maximize profits.