SoCal spot gas prices shielded from heat wave impact by ample supply

Despite forecasts showing potential record-high temperatures, spot gas prices in Southern California slid in Feb. 9 trading amid gas storage availability and rebounding Permian supply.

Cash SoCal, city-gates fell 20.50 cents to $3.915/MMBtu in Feb. 9 trading, while El Paso, South Mainline dipped 22 cents to $3.805/MMBtu, Platts preliminary settlement data shows.

Regional spot gas prices have seen their basis spreads to cash Henry Hub flip to discounts in recent days, after maintaining strong premiums for most of December and January. SoCal city-gate's spread to cash Henry came in at a 13.50-cent discount Feb. 9.

Heat wave

The National Weather Service issued a rare winter heat advisory for Los Angeles and inland Southern California for Feb. 9-13, citing the potential for temperatures to climb into the high 80s Fahrenheit.

The agency predicted that numerous record highs could be broken across the region on Thursday, Feb. 10. Los Angeles was forecast to see a high temperature of 89 F on Feb. 10, which would best the city's existing record high of 88 degrees F that was set in 2016.

Mild highs in the mid-60s F are more typical for Los Angeles at this time of year.

Any surges in gas-fired demand as Californians turn on their air-conditioners over the next several days will likely be met with an ample supply of gas, sourced from both storage and inflows, that will keep spot gas prices largely in check.

Higher inflows

Inflows of gas into Southern California have started to recover after a fierce winter storm battered gas production volumes in the region's key supply areas.

Pipeline nomination data shows that deliveries of Permian gas into both SoCalGas and Pacific Gas & Electric's pipeline systems have increased over the last several days.

SoCalGas' receipts from Transwestern Pipeline system at North Needles reached 640 MMcf Feb. 9, after averaging 550 MMcf/d during the winter storm. SoCalGas' receipts from El Paso Natural Gas system have increased more than 100 MMcf/d to pre-storm levels of around 840 MMcf/d, after falling to average 730 MMcf/d Feb. 2-5.

PG&E's recovery has been even starker, climbing to 490 MMcf Feb. 9 from averaging 160 MMcf/d Feb. 2-5.

Permian gas production dropped substantially during the winter storm, likely due to freeze-offs, S&P Global Platts Analytics data shows. Combined with sharply higher gas demand in Texas and the eastern half of the country, less gas was available to flow west. Permian Basin production has since popped back up, reaching 14.1 Bcf Feb. 9.

Storage

Another assurance of supply for the region is SoCalGas storage, which as of Feb. 9, sat at a multi-year high for this time of year of 77.5 Bcf.

Beyond a reduced imperative to conserve storage levels as the winter months dwindle, conditions at Aliso Canyon Natural Gas Storage Facility mean that storage can be drawn on heavily if the upcoming heat wave boosts gas demand.

The California Public Utility Commission voted in November to expand the maximum storage capacity at Aliso Canyon Natural Gas Storage Facility to 41 Bcf from 34 Bcf, which was quickly filled by the end of that month.

The second condition of Aliso Canyon's withdrawal protocols states that withdrawals are permitted when Aliso Canyon storage levels exceed 70% of maximum permitted capacity.

As of Feb. 9, Aliso Canyon storage sat at 34.6 Bcf, or 84% of the maximum allowed capacity.

Outlook

With around 5.9 Bcf remaining before Aliso Canyon hits its 70% mark of 28.7 Bcf, Southern California has plenty of wiggle room to withdraw from storage even if gas demand does surge in the next several days.

Combined with continued strong inflows, the availability of gas supply could keep a lid on regional spot gas prices throughout the forecast heat wave.