Denver — The Southern California Gas Company's system has been heavily restricted all summer and continues to cause price volatility in Southern California. The volatility is likely to continue this winter if capacity restrictions continue along with the lower-than-normal levels of gas in storage in the region, according to S&P Global Platts Analytics.
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Recent notifications have impacted both the short-term and longer-term dynamics of the system. Not only has SoCal Gas announced the Aliso Canyon storage facility will limit injections this week due to full inventories, but it has also implemented further Southern Zone restrictions that will limit flows through the zone by an additional 156 MMcf/d. In early July, the California Public Utilities Commission allowed SoCal Gas to increase the Aliso Canyon storage field's working gas capacity by 10 Bcf, bringing the facility's total capacity to 34 Bcf. Platts Analytics expects SoCal Gas in storage will enter the winter season close to its total capacity of 84 Bcf.
Prior to the leak at the facility from October 2015 to February 2016, the Aliso Canyon field by itself had a working gas capacity of 86 Bcf and was the largest storage facility in the US Energy Information Administration's Pacific region.
This winter, storage inventories will be roughly 17 Bcf more than the start of last winter. Despite levels being slightly higher year over year, current pipeline receipt capacity is about 600 MMcf/d below what it was entering last winter. This will cause SoCal Gas -- if no changes occur to the current restrictions -- to rely much more heavily on storage withdrawals through the winter in order to meet on-system demand, which has averaged 2.8 Bcf/d over the last five years.
SoCal Gas' restriction on the Southern Zone line 2001, which will cut capacity in the zone by an additional 156 MMcf/d, is slated to end on October 3. Total Southern Zone capacity was previously limited to 729 MMcf/d and the additional restriction reduces total capacity to 572 MMcf/d. SoCal Gas cited "necessary remediation due to safety related conditions" for the restriction.
Current flows through the Southern Zone have averaged 760 MMcf/d this September prior to the restriction. With the additional capacity cut it can be expected for receipts from Ehrenberg to decline to meet the new capacity limit. SoCal City-Gate next-day basis increased 55 cents following the news of the restrictions last Wednesday. Volatile prices can be expected to continue through October 3, especially if on-system demand reaches more than 2.3 Bcf/d, which is the current pipeline receipt capacity on the SoCal Gas system.
The restrictions currently on the SoCal Gas system will limit pipeline receipt capacity to approximately 2.5 Bcf/d after October 3. The main long-term maintenances currently causing these restrictions have an end date of "to be determined," according to SoCal Gas' most recent maintenance posting. With no end date listed -- and assuming the maintenances continue through the winter -- prices at SoCal City-Gate may react similarly or even more severely than this past summer as on-system demand in the winter is typically higher than during summer. This past summer, which included the same restrictions, saw prices reach record highs at SoCal City-Gate when a period of sustained higher demand occurred. The five-year average for on-system demand on SoCal Gas' system during the winter is 2.86 Bcf/d, which would result in about 350 MMcf/d of storage withdrawal if pipeline receipt capacity remained at 2.5 Bcf/d.
As the system will already be relying on storage withdrawals to meet even average winter demand loads, any spike in demand will most likely cause prices to react in a similar manner as this past summer. On July 25, basis at SoCal City-Gate reached an all-time high of $36.61/MMBtu as on-system demand was 2.9 Bcf/d, which is just slightly higher than average winter demand on the system.
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