US Pacific gas storage region closes gap despite massive reclassification

The Pacific natural gas storage region highlights how dynamic US gas systems can be as it has flipped from the most undersupplied to the most supplied region over the past six months.

The major storage systems in the US Energy Information Administration's Pacific storage region include Pacific Gas and Electric and Southern California Gas.

The utilities both appear to have reached their end-of-winter floor ahead of normal, already flipping to injections. These injections, like SoCal Gas, are faster than this time last year amid an overall weaker demand and pricing environment, narrowing year-on-year inventory losses once adjusting for their recalibration, according to S&P Global Commodity Insights.

PG&E inventories reached an end-of-winter low of 71.5 Bcf March 11, roughly the same time as SoCal Gas. Once adjusting for their 51-Bcf recalibration, this was 10.9 Bcf below this time last year. Since March 11, the region flipped to injections, averaging 381 MMcf/d the 14 days after and reaching as high as 686 MMcf/d March 18.

This has narrowed year-on-year declines to just 3.9 Bcf/d as of March 25 as last year during this time the region was still net withdrawing roughly 120 MMcf/d. If these year-on-year losses were to continue to fall the region will still need to ramp up injections by roughly 100 MMcf/d, as last year the region net injected 481 MMcf/d. S&P Global expects weaker demand in the Southwest and weak prices overall, which should allow for strong injections. But whether they reach the ramp-up required is yet to be determined.

The Pacific region as a whole has climbed within 9% of the five-year average, according to EIA data. The region with the second-lowest deficit to average is the East region, which is down 12%. This has occurred despite a massive recalibration in the region last June, which pushed inventories well below the five-year minimum.

In June 2021, PG&E reclassified 51 Bcf of natural gas in its storage system from working gas to base gas as the company pivoted away from commercial storage part because of state regulations and less volatility in the market.

The reclassification stemmed from a decision filed with the California Public Utilities Commission. The change was from new guidelines for storage facilities from the California Department of Conservation's Division of Oil, Gas, and Geothermal Resources.

Given shrinking seasonal spreads, and a declining outlook for gas demand in California, it made sense for PG&E to exit commercial storage activity rather than upgrade its storage facilities at a cost of nearly $5 billion over a 20-year period. Instead, PG&E only maintains enough storage to balance its own system, supplemented by injection and withdrawal capacity from independent storage providers.

The additional 51 Bcf of working gas capacity was necessary decades ago, but as winter-to-summer spreads continue to shrink and overall gas demand in California trends downward, storage has become less valuable.

"PG&E asserts that the benefits associated with it having excess capacity will continue to decline because the demand for natural gas in California is projected to decline by 1.4% from 2016-2035, even though moderate increases in demand are projected for the residential, small commercial, and transportation sectors," according to the rate case filing.

Early in the shale era, storage could operate on a clear summer/winter schedule, which also fit the cyclability limitations inherent to depleted fields. As demand growth shifts to less obviously seasonal sources of demand, such as LNG exports or industrial, the need for high-deliverability, multi-cycle storage will become more apparent, according to S&P Global.