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Wintry weather, strong gas demand in US Southwest test capacity on El Paso

Highlights

Westbound flows top 3.3 Bcf/d, highest since mid-August

El Paso force majeure continues as winter demand arrives

SoCal Gas city-gate price nears $9/MMBtu; forwards halt decline

  • Author
  • J Robinson
  • Editor
  • Valarie Jackson
  • Commodity
  • Natural Gas
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  • United States

Westbound gas transmissions from the Permian Basin are up sharply since the start of December as colder weather fuels a spike in demand and prices across the US Southwest, testing current capacity limits on El Paso Natural Gas.

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Over the past week, westbound flows from the Permian have averaged more than 3.3 Bcf/d and are at their highest level since El Paso called force majeure on its westbound line 2000 in August, S&P Global Platts Analytics data shows.

Since mid-December, population-weighted temperatures in the Southwest have plunged, dropping below 50 degrees Fahrenheit as the region experiences its coldest weather since last January. Gas demand has surged in response, also reaching its highest level since last winter, averaging nearly 11.6 Bcf/d over the past week.

At El Paso-San Juan, cash prices are up about 25% since early December, topping $5/MMBtu recently and reaching more-than-$2 premiums to Waha. At the SoCal Gas city-gate, prices have neared $9 in recent trading — almost double levels recorded earlier this month, S&P Global Platts data shows.

Maintenance

On El Paso's Line 2000, an earlier pipeline failure remains under investigation with a US Pipeline and Hazardous Materials Safety Administration order reducing operating pressure on the entire system, effectively removing the line from service from the Black River compressor station to the California border, according to El Paso.

In an updated force majeure notice, published Dec. 17, El Paso said that it still does not have a definitive timeline for returning the system back to full service.

The ongoing maintenance significantly reduces capacity on a critical westbound transmission line for Permian gas. Following the announcement of the force majeure in mid-August, westbound flows from the Permian Basin quickly dropped below 3.4 Bcf/d where they've since remained — until recently.

Stronger demand across the Southwest is now beginning to test the limits of El Paso's current westbound capacity. Continued restrictions on Permian supply could fuel price spikes this winter — especially at the SoCal Gas city-gate, which historically faces high prices during peak-demand seasons.

Forwards

Earlier this year, the announcement of El Paso's force majeure prompted a spectacular rise in winter gas prices at the SoCal Gas city-gate to more than $13/MMBtu amid concern over the restrictions on West Texas supply.

Following a decision by the California Public Utilities Commission to temporarily expand SoCal Gas storage capacity at Aliso Canyon this winter, the forward market subsequently cooled. But following the surge in cash prices earlier this month, the downward trend has since halted.

At market settlement Dec. 17, January forwards at the SoCal Gas city-gate were assessed at $6.92/MMBtu — up from levels closer to $6 in early December, S&P Global Platts' M2MS forwards data showed. According to current forecasts, the Southwest could see more temperatures in the upper 40s starting this coming holiday weekend and continuing through late December.