Western US heat wave fuels spike in gas demand even as prices remain low

Blistering heat across the western US is pushing regional gas-fired power burn toward record highs again but elevated storage levels are keeping a lid on prices, even in the notoriously volatile Southern California gas market.

On Aug. 5, the US National Weather Service issued an array of excessive heat warning impacting much of southern California and western Arizona along with portions of southern Nevada and even northern Utah.

In Los Angeles, California the high temperature Aug. 5 was expected to top out around 94 Fahrenheit. Further inland, though, cities like Phoenix, Arizona and Las Vegas, Nevada were expected to see daily highs reaching into the 110 to 115-degree range, according to a forecast from AccuWeather.

Across the western US, gas-fired power burn demand spiked to 6.9 Bcf/d Aug. 5 reaching its highest since late July when even hotter weather lifted regional power burn to an average 7.3 Bcf/d July 23-25, or its highest yet this summer, data from S&P Global Commodity Insights showed.

Over the next week, high temperatures across the western US are forecast to drift lower putting the brakes on gas-fired power demand. Through Aug. 8, regional burn will average about 6.8 Bcf/d before retreating to a projected 6.5 Bcf/d in the week to Aug. 15. By historical standards, western US power burn would still remain elevated, trending above the three-year historical range through at least Aug. 10, forecast data from Commodity Insights showed.

Prices

On Aug. 5, spot gas prices across the Western US were up, but remained well below highs typically seen during the peak summer cooling season.

At the SoCalGas city-gate, the cash market Aug. 5 was assessed at just $2.90/MMBtu. From June 1 to date, prices there have averaged only $2.13 which compares with an average $4.73 over the same 10-week period last year. During summer 2023, southern California gas prices routinely traded into the high single-digits and on several occasions at upwards of $10 – levels so far unseen this season.

At other historically volatile hubs across the western US – like the SoCalGas border hub trading Aug. 5 at around $2.78/MMBtu, PG&E city-gate pricing close to $3.26 and Kern River, delivered at $2.84 – gas prices were mostly higher on the day but still well below levels seen during summer 2023, data from Intercontinental Exchange and S&P Global Commodity Insights showed.

Storage

Lower gas prices across the West this summer come as gas storage levels there continue to trend near five-year highs, helping to keep a lid on market volatility.

On Aug. 1, the US Energy Information Administration reported a modest 3 Bcf withdrawal from Pacific region inventory in the week to July 26. Now, as of late July, aggregate gas storage across Washington, Oregon and California stands at 286 Bcf which is 24 Bcf, or about 9%, above the five-year average. Compared with 2023, inventory levels are 55 Bcf, or nearly 24%, above the year-ago level. In the EIA's Mountain region, which often supplies the western gas markets, the surplus to the five-year average and year-ago levels are even more pronounced, EIA data showed.