Analysis: SoCal Gas might reach max storage capacity by August under 'best case scenario'

Despite capacity curtailments this summer leading to Southern California Gas Company's storage system, its fields could hit maximum capacity as early as August, especially considering extended demand loss due to the coronavirus pandemic, pushing down regional prices.

SoCal Gas' summer 2020 technical assessment indicates a summer-over-summer decrease in pipeline receipt capacity of approximately 70 MMcf/d under a "best-case scenario." That is assuming 90% utilization of available capacity in addition to Line 235‐2, Line 4000 and Line 2001 returning to service in time for the peak period of summer demand.

Despite lower receipt capacity compared with last summer, storage inventories will be capable of filling to their full capacity of 84.4 Bcf by August, under the best-case scenario, which also includes additional accessibility to Aliso Canyon inventories made available under the new withdrawal protocols approved late last summer.

Assuming 90% utilization of available capacity, receipt capacity should come in at 2.9 Bcf/d, a decrease from last summer's estimated 2.97 Bcf/d. However, despite lighter receipt capacity, incremental accessibility of Aliso Canyon inventories should alleviate system reliability concerns as observed this past winter.

Under the new protocols easing withdrawal restrictions at Aliso Canyon, SoCal Gas was able to withdraw approximately 18.55 Bcf from the facility this winter, meeting withdrawal requirements 53 times and withdrawing on 48 of those occasions. The new protocols also tamed the frequency and magnitude of single-day price blowouts. Said protocols should continue to help this summer, as the facility will be available to the operator to assist with system reliability concerns on days with high demand or supply curtailments.

SoCal Gas, city-gate basis averaged $1.73/MMBtu this winter, roughly half of prices the previous winter. It hit a single-day price high this winter of $4.25/MMBtu as compared to $19.58/MMBtu last winter.

SoCal Gas inventories entered the summer injection season with approximately 52 Bcf in the ground, a year-over-year surplus of approximately 13 Bcf. Stocks held a deficit to the five-year average by 2 Bcf, according to S&P Global Platts Analytics.

Balance-of-summer strip pricing for SoCal Gas, city-gate indicates market sentiment is anticipating softer pricing as the current forward basis contract is sitting at 42 cents/MMBtu, approximately 7 cents, less than the same period last summer.

The 2020 summer assessment also indicates SoCal Gas will have sufficient capacity to meet the forecasted peak demand of 3.32 Bcf/d under the best-case scenario with or without Aliso Canyon inventories available.

However, there are risks, with worst-case scenario receipt capacity assessed at 3.25 Bcf/d or 2.97 Bcf/d with and without the use of Aliso Canyon, respectively. Additional risks to supply restrictions and maintenances may arise due to coronavirus concerns that could influence operations this summer, affecting system reliability as well as SoCal Gas' ability to replenish stocks.

Assuming the best-case scenario materializes, SoCal Gas could fill its storage fields by as early as August, and may have excess pipeline supply of as much as 26.54 Bcf throughout the season, which could be stored at Aliso Canyon until the facility reaches its 34 Bcf capacity. This scenario could paint a bearish picture for pricing as stocks rebuild rapidly.