Strong storage pulls help insulate SoCal spot gas prices from lower inflows

Massive daily withdrawals from SoCalGas storage have helped mitigate the pricing impact of weather-driven supply reductions from the Permian Basin and Rocky Mountain region.

After spiking in Feb. 2 trading, spot gas prices in Southern California fell substantially on Feb. 3, reducing the locations' basis premiums to cash Henry Hub.

Cash SoCal, city-gates shed $2.54 to trade at $6.23/MMBtu Feb. 3, according to preliminary Platts settlement data, reducing its premium to cash Henry Hub to 36 cents. El Paso, South Mainline fell $2.74 to trade at $6.29/MMBtu, while Kern River, delivered fell $1.84 to $6.16/MMBtu.

Lower inflows

An ongoing winter storm has triggered freeze-offs in two of the region's key sources of supply, the Permian and the Rockies. S&P Global Platts Analytics data shows that Permian flows were down 1.6 Bcf/d to 12.2 Bcf/d Feb. 3 from its prior 14-day average, while Denver-Julesburg production had fallen around 220 MMcf/d Feb. 3 from its prior two-week average.

With less Permian gas getting out of the ground and West Texas demand surging, SoCalGas' receipts at Ehrenburg from El Paso Natural Gas system dropped to average 690 MMcf Feb. 2-3, down from averaging around 870 MMcf/d in January. Similarly, receipts at Wheeler Ridge from Kern River fell to average around 370 MMcf/d Feb. 2-3, down from a January average of nearly 540 MMcf/d.

Total intrastate receipts into the SoCalGas system fell to average 2.07 Bcf/d Feb. 2-3, down from a prior-month average of 2.62 Bcf/d, according to pipeline nomination data.

Larger storage withdrawals

To make up for the cut in inflows, daily storage withdrawals from SoCalGas have been ramped up.

Pipeline nomination data shows that net withdrawals surged to 1.37 Bcf Feb. 2 and 1.19 Bcf Feb. 3. Daily withdrawals from SoCalGas rarely exceed 1 Bcf/d.

A combination of two factors have made the uptick in daily withdrawals possible: the decision to expand the maximum allowable capacity at Aliso Canyon this winter and a stretch of mild temperatures in the Southwest for most of January.

In early November, the California Public Utilities Commission voted to expand the maximum capacity at Aliso Canyon Natural Gas Storage Facility to 41 Bcf from its prior limit of 34 Bcf. SoCalGas lost little time in filling the additional storage capacity, with total storage volumes accelerating from 81.7 Bcf on the day of the vote, Nov. 4, to a five-year high of 90 Bcf by Nov. 30.

The average Southwest temperature remained in the mild mid-50s Fahrenheit for most of January, data from Platts Analytics and CustomWeather shows, which led to several weeks of net injections into storage.

This helped pad storage levels, putting Aliso Canyon storage in a position where the second condition of the Aliso Canyon Withdrawal Protocol could be triggered. This allows for withdrawals from Aliso Canyon when gas stocks are above 70% of its maximum allowable inventory.

Outlook

SoCalGas' electronic bulletin board showed Aliso Canyon storage sitting at 36 Bcf, or at 87.8% capacity, as of Feb. 2. Storage levels at Aliso Canyon would have to fall below 28.7 Bcf, or 70% of maximum capacity, to no longer qualify for condition two withdrawals.

This could help keep a lid on Southern California spot gas prices if production takes some time in returning to pre-winter storm levels.