SoCalGas storage injection season begins in downside risk to city-gate basis

Summer gas prices at the SoCal Gas city-gate could come under renewed pressure in the weeks ahead as already expanded storage inventories in southern California make an early start to the injection season.

In recent trading, summer basis prices at the city-gate gas hub have been on the rise, rebounding from a monthslong, steep decline that came following a move last fall by the California Public Utilities Commission to increase working gas storage capacity at California's Aliso Canyon facility.

Forward basis prices for the July and August 2022 contracts appeared to bottom out earlier this year around $1.60/MMBtu premium to the Henry Hub before making a modest rebound of about 10-15 cents in recent weeks, S&P Global Commodity Insights data shows.

With the storage withdrawal season in southern California coming to an early close this month, though, basis prices for the peak-summer months could be facing more downward pressure ahead.

Storage

Over the past two weeks, storage levels on the SoCalGas system are up about 3% to just over 73 Bcf as the utility begins building its inventories amid rising temperatures and weaker demand.

In November 2021, the CPUC approved a plan allowing SoCalGas to expand working gas capacity at Aliso Canyon to 41.19 Bcf, effectively adding about 7 Bcf to the utility's storage system.

In the weeks following, mild weather allowed the utility to extend its injection season, boosting systemwide inventories to some 90 Bcf in late November before withdrawals began, marking a six-year high for inventory levels according to analytics data compiled by S&P Global.

During the recent heating season, relatively flat year-on-year demand and higher receipt capacity helped SoCalGas to keep withdrawals to a minimum with less than 10 Bcf pulled from inventory this winter.

As southern California's injection season gets underway, it now appears increasingly likely that inventories could reach their maximum capacity by early autumn or even late summer – potentially limiting injection demand while keeping the region's gas market well supplied during the upcoming peak-cooling period.

Prices

In the months since the CPUC began considering an increase in working gas capacity at Aliso Canyon – first proposed in October 2021 – forward basis prices at SoCal Gas city-gate have tumbled across the board but could face even more pressure ahead as this season's storage risk grows.

Last summer, the SoCal Gas city-gate traded at an average $2.30/MMBtu premium to Henry Hub in July and August. With July 2022 and August 2022 forward basis prices currently trading around $1.70 premium, or just 60 cents below last summer's average, the market could see more downside ahead, especially if southern California's storage system nears its maximum capacity ahead of schedule.