California, US Southwest spot gas prices slump as historic heat wave fades

Spot gas prices in California and the US Southwest fell back to earth in Sept. 9 trading for Sept. 10-12 flows, ahead of forecasts showing more seasonally normal temperature ranges that should weaken gas-fired power demand.

SoCal Gas, city-gate spot gas dropped $3.845 to a seven-week low of $8.225/MMBtu, reducing its spread to cash Henry Hub to an 8-cent premium, preliminary settlement data from S&P Global Commodity Insights shows. The near-parity to cash Henry Hub marks a major shift: SoCal Gas, city-gate averaged a $4.95 premium for Sept. 1-8.

Other regional spot gas price locations saw substantial weakening in Sept. 9 trading. El Paso, South Mainline plummeted $3.625 to $8.265/MMBtu and Kern River, delivered fell $3.88 to $7.77/MMBtu at preliminary settlement.

The National Weather Service forecast that the historic heat wave that lifted daily highs in California and the Southwest into the triple-digits and broke a record for California Independent System Operator daily peak demand will start to ease late on Sept. 9.

The weather service plans to lift Excessive Heat Warnings in place across California in the evening of Sept. 9, as daily highs across the state fall 10-15 degrees through Sept. 12. Los Angeles was forecast to see its daily high drop to 82 F Sept. 12 from 99 degrees Fahrenheit Sept. 9, while Sacramento's daily high was set to fall to 93 F on Sept. 12 from 107 F on Sept. 9.

Thermal generation demand

Gas-fired power demand played an outsized role in keeping the lights on during the recent heat wave, accounting for 45%-52% of daily generation in the CAISO footprint for Aug. 30-Sept. 7. CAISO data shows that daily thermal power generation reached an eight-year high on Sept. 6, the same day that the ISO set a new peak power demand record of 52 GW.

Daily thermal demand in the CAISO service area averaged 439 GWh/d for Sept. 1-7, the strongest thermal demand for the first week of September on record, according to ISO data dating back to 2010. With just one coal-fired power plant left in operation in the state of California, CAISO's classification of thermal generation largely refers to gas-fired power generation.

Beyond the usage of existing gas generators, the higher gas demand was boosted by the deployment of dozens of backup generators and of four temporary emergency gas-fired power generators by the Department of Water Resources in Roseville and Yuba City. The four emergency generators provided an additional 120 MW of power generation capacity and were initially installed as part of a July 2021 executive order from Governor Gavin Newsom to provide additional grid reliability during extreme heat events.

Domino effect

With California demand set to wane, cash market prices in the state's key gas supply regions also fell in Sept. 9 trading.

Pipeline nomination data shows that California utilities SoCalGas and Pacific Gas & Electric heavily drew on Permian gas supplies during the heat wave. SoCalGas receipts from El Paso Natural Gas system at Ehrenberg and Topock increased around 180 MMcf/d from August levels to average 974 MMcf/d so far this September. Transwestern deliveries to SoCalGas also increased, up around 70 MMcf/d for September 1-9 than the August average. El Paso Natural Gas also boosted deliveries to PG&E system by around 135 MMcf/d from August levels to average 440 MMcf/d so far in September.

Permian gas benchmark spot Waha Hub shed 32 cents to settle at $6.595/MMBtu, widening its discount to cash Henry Hub to $1.55, preliminary settlement data shows.

Larger volumes of Canadian and Rockies gas also made its way into the PG&E system from Gas Transmission Northwest, with deliveries to PG&E averaging 1.53 Bcf/d so far this September, up from 1.4 Bcf/d in August. Cash GTN, Kingsgate slid $1.62 to $2.30/MMBtu at preliminary settlement, while West Canada hub TCPL-Alberta, AECO-C dropped C$1.97 to C$2.72/GJ at mid-session on the Intercontinental Exchange.