Heat wave lifts US Southwest spot gas, power prices to year-to-date highs

Spot gas and power prices in the US Southwest and California soared to the highest points so far in 2022 in Aug. 30 trading for next-day flows, as a prolonged heat wave boosted gas-fired power demand.

El Paso, South Mainline, spot gas gained nearly $4 to reach $15.04/MMBtu Aug. 30, preliminary settlement data from S&P Global Commodity Insights shows. Cash Kern River, delivered, and cash SoCal Gas, city-gate, also surged, gaining $3.18 to $13.435/MMBtu and $2.62 to $13.60/MMBtu, respectively. All three regional spot prices last settled higher Sept. 8, 2021.

The daily gains build on the previous trade day's buoyancy, with regional prices' spreads to cash Henry Hub flipping from discounts to large premiums. El Paso, South Mainline -- a hub that reflects westbound gas flowing into the Southwest and Southern California from the Permian -- saw its spread to cash Henry Hub flip from a 53-cent discount Aug. 26 to a $1.885 premium Aug. 29, to a $6.08 premium Aug. 30.

Although pipeline nomination data shows that SoCalGas storage sat at 89.1 Bcf Aug. 30, just below full working capacity, the utility has so far ramped up inflows rather than dipping into storage, which has had a knock-on effect of pushing prices at inflow hubs like El Paso, South Mainline, higher.

Pipeline nomination data suggests that higher spot gas prices have already attracted more inflows, particularly from the Rockies. Inflows from the Rockies into the West leapt 318 MMcf, or 11%, Aug. 30, data from Platts Analytics showed. While direct deliveries from the Permian to SoCalGas system are limited by ongoing capacity restrictions on Line 2000, pipeline nomination data shows that additional Permian gas has likely made its way into the SoCalGas system via PG&E Wheeler Ridge, which saw utilization rise by around 195 MMcf/d Aug. 30.

Power market dynamics

In the power spot market, prices also climbed with anticipated increased cooling demand.

SP15 on-peak day-ahead traded around $200.50/MWh for Aug. 31 delivery on the Intercontinental Exchange, while the on-peak balance of the week package was bid at $215/MWh and offered at $450/MWh.

In the Southwest, Palo Verde on-peak day-ahead traded around $225/MWh for Aug. 31 delivery, while on-peak strip for hours ending 1700 through 2200 traded near $425/MWh on ICE.

For comparison, SP15 on-peak day-ahead locational marginal prices have averaged about $107.25/MWh so far this month, 70% higher year on year, according to California Independent System Operator data. Palo Verde on-peak day-ahead has averaged roughly $115.75/MWh month to date, 72% higher than a year ago.

Heat wave

A prolonged and possibly record heat wave looks to build this week as strong upper-level ridging over the West supports widespread and well above normal temperatures, according to the US National Weather Service. Excessive heat watches are in effect for portions of the interior California Valley, as temperatures could exceed 110 degrees Fahrenheit in parts of the Southwest where an excessive heat warning is currently in effect.

The weather service forecast that the daily high temperature in Los Angeles would climb into the 90s Fahrenheit through Sept. 3, with triple-digit highs between 100-102 F expected for Sept. 4-5.