SoCal gas prices at risk as El Paso extends maintenance on westbound mainline

An updated November maintenance schedule recently published by El Paso Natural Gas has extended ongoing pipeline repair work on its westbound mainline through the end of this month, posing additional upside risk for gas prices in Southern California as colder autumn weather looms.

The extended outage keeps in place a nearly 600 MMcf/d reduction in westbound transmission capacity from the Permian Basin with significant throughput reductions at the Cimarron compressor station and other nearby compressors, the preliminary maintenance schedule released Oct. 27 shows.

The unscheduled maintenance, which began in mid-August, started when a segment of El Paso's Line 2000 near Coolidge, Arizona suffered a failure, triggering the ongoing force majeure.

Release of the updated maintenance calendar on Oct. 27 triggered a short-lived rally in the forward market at the SoCal Gas border hub where the November contract jumped 32 cents on the day to $6.83/MMBtu. At the SoCal Gas city-gate, prices were little changed on the news, dropping just 1.5 cents to $7.68/MMBtu.

After rolling to the balance-of-month, November contract prices at both hubs have since declined about 30 cents, S&P Global Platts' most recently published M2MS data shows.

Southern California weather

With winter-like temperatures now on the horizon, the ongoing westbound restriction on Permian supply could help to fuel a spike in both cash and forward prices at the SoCal border and city-gate hubs as temperatures inevitably turn colder.

According to the National Weather Service's most recent eight to 14-day outlook, temperatures in Southern California are likely to trend above-average through mid-month. In the Los Angeles metro-area, a bearish weather forecast from Platts Analytics shows temperatures averaging about 67 F through Nov. 15 – largely unchanged from the October average.

In previous autumn seasons, temperatures in Los Angeles have often dipped into the mid- to low-50s F, even in early November and especially later in the month. Last November, cash prices at the SoCal city-gate jumped to nearly $6 in early November, gaining almost 70%, as temperatures in Southern California fell to 53 degrees F, driving a spike in heating demand.

Aliso Canyon

Given California's potential gas supply crunch this winter, the state's public utilities commission announced Oct. 1 that it would consider two proposals to ensure sufficient supply is available for gas and electric customers in the Los Angeles metro-area this winter.

The dual proposals, which triggered a precipitous selloff in winter forward prices at the SoCal Gas city-gate in early October, would allow for increasing the amount of gas to be stored at the Aliso Canyon facility. The California PUC votes Nov. 4 on whether to adopt either of the two proposals.

While the first proposal recommends increasing Aliso Canyon's capacity to 68.6 Bcf, which is the "maximum amount allowable to ensure safe operations," a second proposal advocates for increasing storage to just 41 Bcf. According to the second proposal's author, Commissioner Martha Guzman Aceves, "[the plan] allows us to get through this winter while we continue our progress toward planning how to reduce or eliminate our use of Aliso Canyon by 2027 or 2035, or anytime in between."

Aliso Canyon's maximum capacity was limited to 34 Bcf following a gas leak in 2015.

Adoption of either proposal – especially the first – could trigger a selloff in winter gas prices at the SoCal Gas city-gate later this week, possibly mirroring the selloff that occurred earlier this month when the two proposals were initially published.