US Southwest, California spot natural gas price rally halted by strong storage draws

A rally in US Southwest and Southern California spot natural gas prices halted Sept. 1, as Southern California Gas tapped into storage to meet elevated gas-fired power demand from an ongoing heat wave.

SoCal Gas, city-gates cash prices fell 13.50 cents to $15.72/MMBtu, while prices at El Paso Natural Gas, South Mainline plunged 46 cents to $15.36/MMBtu, and Kern River Gas Transmission-delivered shed 42 cents to $15.54/MMBtu, preliminary Platts settlement data from S&P Global Commodity Insights showed. All three spot gas price locations had reached year-to-date highs in Aug. 31 trade for next-day flows, reaching the potential pinnacle of a rally that saw prices nearly double Aug. 29-31.

A prolonged heat wave across the US West has driven the pricing surge, with the National Weather Service warning that new daily records could be set as temperatures climb into the triple-digits. Central and Southern California have been particularly hard hit, with higher-than-normal temperatures, sending air-conditioning demand for electricity across the region soaring. Platts Analytics data shows that PG&E on-system demand jumped 69% to 2.7 Bcf Sept. 1 from Aug. 28 levels, while Southern California demand rose 41% to 4.1 Bcf.

With California dependent on other regions for the bulk of its gas supply, pricing at hubs that receive gas deliveries from the Rockies—Kern River, delivered—and Permian—El Paso, South Mainline—hurtled higher to attract more molecules from these regions. Inflows from the Rockies into the West increased by 1.2 Bcf, or 48%, to 3.6 Bcf Sept. 1 from Aug. 28 levels.

With SoCal Gas ramping up its storage withdrawals, the need to attract imports into the region remains strong but less urgent, allowing spot gas prices at inflow hubs to ease slightly.

SoCal Gas storage

Pipeline nomination data shows that SoCal Gas has sharply increased storage withdrawals from storage over the last four days, with net pulls climbing to 668 MMcf/d Sept. 1 from 192 MMcf Aug. 29.

The increased draws from storage have been enabled by the Aliso Canyon Storage Facility in Los Angeles County, which SoCal Gas declared available for withdrawal capacity Aug. 31-Sept. 1 after meeting the conditions for the latest Aliso Canyon Withdrawal Protocol.

Aliso Canyon, one of the largest gas storage facilities in the country by design capacity, has seen its usage substantially restricted since a massive leak was discovered in October 2015. In November 2021, the California Public Utilities Commission voted to expand operational capacity at Aliso Canyon by 21% to 41.16 Bcf, in large part to protect grid reliability during extreme weather events that spike demand. At the time of the Nov. 4 vote, several PUC commissioners reiterated their support to close Aliso Canyon completely once an alternative is found.

Outlook

Heat wave conditions are expected to continue in California and the Southwest through the Labor Day holiday weekend and potentially beyond, with CustomWeather predicting that the average temperature in the West will be 5-7 degrees above normal through at least Sept. 7.

The weather service's most recent six- to 10-day forecast showed a strong likelihood of continued above-normal temperatures Sept. 7-11.