The Southern California Gas city-gate 2021-22 winter strip rose nearly $3 over the last month to reach a new record, as pipeline maintenance and repair projects continue to restrict inflows.
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An average of SoCal city-gate November 2021-April 2022 contracts reached $10.78/MMBtu, up from $7.89/MMBtu Sept. 1, according to the most recent S&P Global Analytics M2MS forward curve data.
While November-through-February all surpassed $10/MMBtu, the December contract has soared to reach $14.41/MMBtu, up around $5 since the start of the month.
The National Weather Service's seasonal temperature outlook, published Sept. 16, shows that above-normal temperatures are likely to continue in Southern California through the end of the year. In some regions, this might be a bearish sign for gas prices, but with Los Angeles forecast to start October with highs in the 90s Fahrenheit, cooling demand might continue at elevated levels.
Adding further bullishness to winter gas demand expectations, the US Climate Prediction Center expects drought conditions to persist through the end of the year, which could further strain hydropower generation.
Hydropower generation has averaged 37 GWh/d from July through September, down 30% from averaging 53 GWh/d for the same time last year, according to California Independent System Operator data.
California operators have turned to gas-fired generation to make up the difference, with CAISO data showing thermal generation averaged 289 GWh/d from July through September, up 26 GWh/d, or 10%, from July-September 2020.
Even as gas demand increased this summer, a series of pipeline maintenance and repair projects limited inflows into the SoCalGas system.
Two projects, in particular, have slashed the amount of gas able to flow in from the Permian through the El Paso Natural Gas system.
SoCalGas started planned work on the Newberry compressor station July 26, which cut receipts from EPNG at Topock to zero. Although that project ended Sept. 10, work on Line 3000 has kept restrictions in place at Topock.
Inflows through EPNG's other major interconnect with SoCalGas, Ehrenberg, were also reduced when EPNG declared force majeure on its Line 2000 Aug. 15.
While some Permian gas was rerouted to SoCalGas through PG&E and inflows from the Rockies through Kern River Gas Transmission increased slightly, total receipts into the SoCalGas system dropped around 340 MMcf/d following EPNG's Line 2000 force majeure.
Despite the inflow restrictions and robust gas-fired power demand, SoCalGas has succeeded in filling its storage capacity nearly to the brim this injection season. Platts Analytics data shows that SoCalGas system storage sat at 81.47 Bcf as of Sept. 29.
But the Pacific region as a whole has struggled to build up storage levels ahead of the upcoming winter, which could stress the regional gas supply-demand balance. In eight of the last 10 weeks, Pacific storage has either seen a net withdrawal or no change, according to the Energy Information Administration weekly storage report data.
Pacific storage sat at 240 Bcf/d as of the week ended Sept. 17, which is an 18.4% deficit to the five-year average of 312 Bcf.
The restrictions limiting westbound EPNG flows are currently scheduled to run through October and possibly longer, EPNG's October maintenance calendar shows.
But some of the SoCalGas pipeline restrictions are scheduled to end Oct. 1, which could provide some additional optionality.
Work on Line 4000, which began May 1, reduced inflow capacity through the Northern Zone by around 720 MMcf/d and through the Needles/Topock area zone by 90 MMcf/d throughout the summer.