Californian gas markets return to familiar premium status as temperatures rise

Rising demand in the Western US has lifted Californian markets back to a premium over Henry Hub, something forward traders are betting will continue for the rest of the year.

Despite being traditionally a premium market, the Platts cash price at Socal Gas city-gate has been mostly below Henry Hub for the past three months, averaging a cash discount of around 45 cents over March 1-May 27. Similarly, the PG&E city-gate cash basis averaged a 60-cent discount in the same period, according to data from Platts, part of S&P Global Commodity Insights.

Due to their location at the end of supply lines from New Mexico, the Rockies and Canada, Californian markets are typically high priced and have a tendency to spike. However, prices throughout the Western region have been weak this summer amid strong supply, a mild winter and strong storage inventories. At the same time, rising demand in Louisiana because of the swift ramp-up of Plaquemines LNG has supported Henry Hub.

However, both Californian markets have returned to more familiar premium status in recent days, with SoCal Gas city-gate averaging a 40-cent premium to Henry Hub since May 27, Platts data showed.

Prices in the Western US have picked up since the end of May as rising temperatures lifted demand from the power sector. Consumption in the Western US averaged 8.5 Bcf/d over May 27-June 2, around 1 Bcf/d above the five-year average, Commodity Insights data showed. It is forecast to average 8.2 Bcf/d over June 3-17, around 270 MMcf/d above normal, according to Commodity Insights data.

The Western US is likely to have above-average temperatures during June, according to a May 31 long-range forecast from the National Weather Service. A seasonal forecast from May 15 said above-average temperatures were likely from June through August.

While gas storage stocks in Southern California remained well above the five-year average, they were much lower year over year. Inventories on the SoCal Gas system stood at 87.5 Bcf on June 1, down from 101.9 Bcf on the same day of 2024.

In the US Energy Information Administration's Pacific region, inventories were 254 Bcf as of May 23, 12% above the five-year average but around 4% lower year over year.

The old normal

The two hubs are priced at strong basis premiums for the rest of the year, suggesting forward traders see the recent discounts as an aberration.

Forward contracts for SoCal Gas city-gate for the second half of the year were priced at an average $5.27/MMBtu on May 30, an average $1.50/MMBtu premium to Henry Hub. The equivalent PG&E city-gate contracts were priced at an average $4.40/MMBtu, the data showed.