SoCal winter strips lose ground as SoCalGas storage levels rise to five-year high

The winter strips for Southern California gas pricing locations have fallen more than 90 cents since the California Public Utilities Commission voted a week ago o expand the maximum allowable Aliso Canyon storage capacity.

SoCal city-gate's December 2021-March 2022 strip has fallen 95 cents since the Nov. 4 decision, dropping to $6.88/MMBtu on Nov. 10 from $7.83/MMBtu on the earlier date, according to S&P Global Platts Analytics M2MS forward curve data.

SoCalGas' winter strip has seen a similar erosion since Nov. 4, decreasing 97 cents to $5.55/MMBtu in the most recent M2MS forward curve data.

Part of the drop can be explained by an overall downward movement in the market, with the NYMEX Henry Hub December-March contract average falling 82 cents over the Nov. 4-10 period.

Even so, SoCal city-gate and SoCalGas have each seen its December-March strip premium to the NYMEX Henry Hub December-March average narrow by 13-15 cents since Nov. 4, suggesting that additional factors are at work.

Storage dynamics

SoCalGas storage levels sat at 84.2 Bcf as of Nov. 11, according to pipeline nomination data collected by S&P Global Platts Analytics, which is the highest SoCalGas' inventory has reached since January 2016.

For much of the last three months, SoCalGas storage levels have bumped up against the five-year ceiling of 82 Bcf, largely remaining just below it at around 81 Bcf.

In the seven days since Nov. 4, injections into SoCalGas storage have ramped up to its fastest rate yet this year to average 370 MMcf/d, up from 36 MMcf/d during the seven days prior.

Injections will likely continue at a similar pace until the new limit of around 89 Bcf is reached, as the utility seeks to fill storage before winter demand sets in. At this rate, the new limit will be reached by the end of November.

Southern California spot gas prices have increased to lure the additional gas west, with cash SoCal city-gate averaging $6.34/MMBtu since Nov. 4, up more than 25 cents from its prior 30-day average.

Most of the additional volumes have been sourced from the Permian, with pipeline nomination data showing Transwestern North Needles and El Paso Ehrenberg receipt points seeing the largest gains.

Aliso Canyon capacity

On Nov. 4, the CPUC voted 4-0 to expand the maximum storage capacity at SoCalGas' Aliso Canyon Natural Gas Storage Facility to an interim level of 41 Bcf, up from a prior limit of 34 Bcf, to help ensure system reliability this winter.

The limits stem from the aftermath of a major leak at the Los Angeles County facility that was discovered in October 2015 and plugged in February 2016. With a total designed capacity of 86 Bcf, Aliso Canyon was one of the largest gas storage facilities in the country.

Despite the interim capacity increase, the CPUC does not plan to move towards further capacity expansions.

Instead, the CPUC will "continue to move forward on planning how to reduce or eliminate the use of Aliso Canyon, and to ultimately reduce our reliance entirely on such natural gas infrastructure as we transition to a clean economy," Commissioner Martha Guzman Aceves said Nov 4.