SoCal Gas city-gate prices climb to early-summer record as temperatures rise

Spot natural gas prices at the Southern California Gas city-gate surged above $10/MMBtu earlier this week to trade at record highs for June with more records likely to come later this week and through the summer.

In June 8 trading, cash prices at the city-gate were up another 33 cents from the prior-day settlement, trading around $10.52/MMBtu, Intercontinental Exchange data showed.

The price surge—up nearly $2 over the past several days—comes as Southern California and the desert Southwest brace for a sharp rise in cooling demand June 9-12 when temperatures are forecast to hit 80-90 degrees Fahrenheit in Los Angeles and over 110 degrees in cities further inland.

Earlier this week, the National Weather Service issued an excessive heat warning across southeastern California, southern Nevada, and most of southern Arizona starting June 9 through the coming weekend.

On the SoCal Gas system, demand was estimated at just over 2.1 Bcf/d June 8, up about 300 MMcf/d over the past several days. Across the western US, power burns are forecast to reach 4.2 Bcf/d this coming weekend, up from an average of 3 Bcf/d over the past week, Platts Analytics data showed.

While not unusual for early June, hot weather and stronger demand in Southern California and the Southwest are fueling record prices this season thanks to elevated benchmark prices at the Henry Hub.

Expanded working-gas capacity at the Aliso Canyon storage field has boosted overall storage levels on the SoCal Gas system since last November, actually helping to ease the utility's price premium this summer. Compared with June 2021, the cash basis at the city-gate is down about 37 cents so far in June, according to S&P Global Commodity Insights data.

Summer outlook

Looking beyond the upcoming weekend, SoCal cash prices could be poised for more record highs this summer, especially by July and August, as summer cooling demand in Southern California peaks.

Over the balance of June, and through July and August, the Los Angeles metro area faces a 33%-40% chance for above-average temperatures with a 40% to as high 60% probability for hotter weather in south-central and southeastern California, according to recent monthly and seasonal temperature outlooks from the weather service.

Along with stronger benchmark gas prices, longer-range weather forecasts have the forward gas markets already bracing for a record summer at the SoCal city-gate, where the July and August forward contracts are now trading in the upper $11s/MMBtu. Despite higher capacity on the SoCal Gas storage system this summer, the market is pricing in similar basis premiums to summer 2021, with the city-gate's July and August contracts trading at around a $2.50/MMBtu premium to the benchmark Henry Hub, Platts M2MS data showed.