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SoCal city-gate's winter strip plunges as CPUC considers lifting Aliso Canyon restrictions

Highlights

SoCal city-gate's winter strip basis to Henry Hub slashed in half

Proposals could expand Aliso Canyon capacity to 41 Bcf or 68.6 Bcf

CPUC will vote on proposals at Nov. 4 meeting

SoCal city-gate's winter strip (November 2021-April 2022) has dropped dramatically since the California Public Utility Commission Oct. 1 issued several proposals that could permit SoCalGas to increase working gas storage capacity at Aliso Canyon Natural Gas Storage Facility this winter.

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The proposals will be voted on at a Nov. 4 CPUC meeting.

SoCal city-gate's 2021-22 winter strip average plunged $2.66 to $8.16/MMBtu on Oct. 4, according to the most recent S&P Global Platts M2MS forward curve data. The drop halved SoCal city-gate's winter strip spread to Henry Hub's M2MS winter strip, to $2.64 from $5.43.

Winter forwards for the Southern California gas demand benchmark have skyrocketed in recent months, reaching a record high of $11.05/MMBtu Sept. 30, as the state's heavier reliance on gas-fired generation collided with supply concerns. Repair work continues on El Paso Natural Gas pipeline system's Line 2000, which has throttled inflows from the Permian, even as SoCalGas system's work on the Northern Zone wrapped up Sept. 30.

The December and January contracts saw the greatest heights, reaching $14.95/MMBtu and $13.57/MMBtu respectively, on Sept. 30. The November and February contracts were also elevated, with February climbing above $12/MMBtu. The December contract was the only winter strip month to remain above $10/MMBtu Oct. 4, with all other seasonal contracts falling into the single digits.

CPUC proposals

The commission is considering two proposals to increase capacity at the Aliso Canyon storage facility in order to address winter supply concerns. Modeling by the CPUC's Energy Division has shown that storage of 41.2 to 68.6 Bcf is needed at Aliso to ensure reliability. One variable in the model was pipeline capacity; greater capacity means less storage capacity is required.

Aliso Canyon working gas levels are currently capped at 34 Bcf, following a major gas leak discovered in October 2015.

The first proposal recommended expanding Aliso Canyon's working gas level to 68.6 Bcf, while the second proposal, formally termed Alternate Proposal, endorsed a smaller expansion to 41 Bcf.

The larger proposal is a response to pipeline capacity concerns, according to its Oct. 1 filing.

The proposal used Energy Division modeling to demonstrate that a daily interstate pipeline capacity of 3 Bcf/d would be needed to ensure gas supply reliability at an Aliso Canyon storage level of 41 Bcf, whereas 2.7 Bcf/d of pipeline capacity would be sufficient if Aliso Canyon inventories reached 68.6 Bcf.

SoCalGas's best-case assessment of pipeline capacity was 2.835 Bcf/d and its worst-case assessment was 2.685 Bcf/d, according to the utility's "Southern California Gas Company Summer 2021 Technical Assessment."

Pipeline maintenance and repair work could drop interstate inflow capacity even lower than SoCalGas's official projections. Platts Analytics data shows that interstate pipeline receipts into SoCalGas system averaged 1.81 Bcf/d in September.

Commissioner Martha Guzman Aceves, the presiding commissioner for the Alternate Proposal, defended the proposal's lower limit of 41 Bcf as "safe and reliable."

"As we transition to a clean energy economy, we need to ensure energy reliability," Guzman Aceves said in an Oct. 1 statement. "We must do so in a manner that does not detract from our mandate to ultimately reduce our reliance on natural gas infrastructure like Aliso Canyon."