Western US faces upside risk to gas-fired burns in hot, dry August forecast

More record gas-fired power burns could be in store for the Western US this summer with toasty temperatures and dry conditions likely to continue for the region in August, according to an updated month-ahead outlook from the National Weather Service.

In a broad western region stretching the Northern Plains and the desert Southwest to the Pacific Coast, states will face as much as a 60% risk for above-average temperatures in August, the Weather Service said in its monthly forecast published July 15.

Most of the continental US will see at least a 33%-40% risk for warmer-than-average weather next month, except the lower Mississippi River Valley region, Texas and the Gulf Coast, the agency said. Drier-than-average conditions will likely affect most of the Dakotas, the Rocky Mountains and the Pacific Northwest.

The August forecast is strikingly reminiscent of the hot and dry weather conditions experienced across the western US over the past six weeks, which have pushed electric cooling demand toward record highs and fueled a regionwide rally in spot natural gas prices.

Demand, prices

Across the desert Southwest, including California and Nevada, gas-fired power burn has averaged a record 5.1 Bcf/d this month – the highest ever for the first half of July, S&P Global Platts Analytics data shows.

Last month, temperatures in the Pacific Northwest climbed to over 100 degrees Fahrenheit – even in coastal cities like Portland. During the late-June heatwave, power burn demand in the Northwest climbed to a single-day record high for the region at nearly 1.7 Bcf/d.

Elevated cooling demand has even tested the electric grid further south in California where an official call for additional capacity was made earlier this month by the state's Public Utilities Commission, the California Energy Commission and the California Independent System Operator.

Southern California has been among the hardest-hit corners of the state. Earlier this month, gas demand in the SoCal Gas service footprint alone climbed to over 3 Bcf/d marking its highest for early July since summer 2017.

Strong demand in Southern California has already lifted cash prices at the SoCal Gas city-gate to as high as $8/MMBtu this summer. Month-to-date, spot prices there have averaged nearly $5.60/MMBtu. Higher benchmark gas prices at the Henry Hub aren't entirely to blame. In July, cash basis at the SoCal city-gate has averaged $1.92 – sharply higher compared with last summer's H1 July average of just 14 cents, S&P Global Platts data shows.

Outlook

Over the next two weeks, power burn demand in the US Southwest is forecast to average 4.95 Bcf/d. In the Pacific Northwest, demand should ease modestly to an estimated 900 MMcf/d – down from average levels at over 1 Bcf/d in the first half of July, Platts Analytics data shows.

Moving into August, both regions and especially the Pacific Northwest will see more upside risk for elevated power burns and higher gas prices, based on the Weather Service forecast.

Gas markets in the West are already bracing for that seeming inevitability.

At the SoCal Gas city gate, August calendar-month forwards are currently trading above $7/MMBtu. The month-ahead forward price is down from an annual high at over $7.50 in late June but remains elevated by historical standards.

At the PG&E city-gate in northern California, August forwards have followed a similar upward trajectory this summer with prices most recently settling at just over $5/MMBtu. At the northernmost West Coast hub of Sumas, located at the border with Canada, prices are also elevated this summer with August forwards currently trading at close to $4/MMBtu, S&P Global Platts' most recently published M2MS data shows.