US Southwest braces for triple-digit heat in early-season risk to gas prices

Spot natural gas prices across the desert southwest could be in for an early summer rally in late May as temperatures at the Southern California border, in Las Vegas and Phoenix top 100 degrees Fahrenheit, likely fueling a surge in cooling demand across the region, according to current forecasts.

Temperatures across the Southwest and even parts of the Rockies will spike May 25-29, with the two regions expected to see as much as a 60% chance for hotter-than-normal weather, according a six to 10-day outlook from the US National Weather Service.

As the mercury rises, an uptick in cooling demand is expected to lift power burns across the region into the mid-3 Bcf/d range by late May – potentially its highest since the peak-winter heating season, according to historical and forecast data from S&P Global Commodity Insights.

At locations like the SoCal Gas border hub, Kern River delivered and potentially as far east as El Paso San Juan at the New Mexico-Arizona border, already elevated gas prices could hit record highs for late May. On May 20, cash prices across the region were down about 20-30 cents/MMBtu, settling in the mid-$7 range as temperatures were expected to cool over weekend, preliminary Platts settlement data showed.

At close to $8/MMBtu, a potential spike in gas prices across the Southwest could mean new record highs for a region where spot gas typically trades at closer to $3 to $4/MMBtu in late May.

El Paso maintenance

High gas prices, potentially sparked by the upcoming early-season heat wave across the Southwest, could be exacerbated by ongoing pipeline maintenance on El Paso Natural Gas – a critical supply corridor for Permian Basin production moving westbound toward the California border.

In a critical notice published May 19, El Paso said that its Line 2000 outage would likely continue over the next several months with no timeframe for bringing the pipeline back to full commercial service. Following a pipeline failure last August, Line 2000 has remained under a PHMSA order with reduced operating pressure effectively removing it from service.

In 2022, westbound flows from the Permian toward the California border have averaged about 3.1 Bcf/d – nearly 300 MMcf/d below the corresponding 2021 average, owing mostly to the El Paso outage.

In late May, and through the summer months, the El Paso outage could pose an outsized and upside risk to gas prices across the Southwest as the region continues to grapple with reduced supply.