Surging gas-fired power demand propels Southern California spot gas prices to fresh highs

Southern California spot gas benchmark SoCal, city-gate climbed above $12/MMBtu for the first time since September 2021 in Aug. 15 trading for next-day flows, as the state turns to gas-fired generation to cope with higher cooling demand.

Cash SoCal, city-gates rose $1.61 to $12.455/MMBtu in Aug. 15 trading, preliminary data from S&P Global Commodity Insights shows. El Paso, South Mainline also traded above $12/MMBtu in Aug. 15 trading, as of preliminary settlement, with cash SoCal Gas and Kern River, delivered not far behind at $11.01/MMBtu and 11.015/MMBtu, respectively.

Wholesale power prices also rose in Aug. 15 trading, with SP15 on-peak day-ahead trading around $149/MWh for Aug. 16 delivery on the Intercontinental Exchange. For comparison, SP15 on-peak day-ahead locational marginal prices have averaged around $111.50/MWh so far this month.

The higher spot gas prices come amid a surge in gas-fired power demand in the CAISO footprint as temperatures soar.

The National Weather Service issued an excessive heat watch for much of inland central California for Aug. 16-19, forecasting high temperatures in a range of 103-108 degrees Fahrenheit for the San Joaquin Valley and 98-103 degrees F for the Lower Sierra Nevada foothills and Kern River Valley.

The weather service also issued a heat advisory for inland Southern California between Los Angeles and San Diego for Aug. 15-17. The high temperature in Los Angeles was forecast to reach 91 degrees F Aug. 15 and remain elevated above the typical August high of 83 degrees F through the end of the week.

The California Independent System Operator declared that maintenance operations on grid assets would be restricted from noon to 10 pm Aug. 15-18 in order to accommodate the expected surge in power load.

CAISO generation dynamics

California has increased its reliance on gas-fired power generation to meet elevated summer cooling demand this August, compared with July. Total CAISO power load has increased to average 781 GWh/d month to date, compared with 723 GWh/d in July, data from the ISO shows.

Thermal power demand in the California Independent System Operator has averaged 344 GWh/d so far in August, up 27% from the 271 GWh/d averaged in July. With just one coal-fired power remaining in operation in California, the ISO's thermal generation category generally refers to gas-fired generators.

Higher power demand is not the only driver of higher month-over-month thermal generation. Power generation from wind and solar has been weaker so far this month compared to last. Data from CAISO shows that wind generation has come in 25% lower and solar 13% lower month-to-date than July levels.

While power imports into CAISO have increased slightly month over month, lower hydropower generation in the Bonneville Power Administration has limited the extent to which power imports can ramped up to meet rising demand. Hydropower generation in the Bonneville Power Administration has dropped sharply month over month, averaging 202 GWh/d so far in August, down 29% from July levels.

Gas supply

Pipeline constraints have also elevated Southern California spot gas prices, while high storage levels have likely kept spot gas prices from spiking to the levels seen last September.

On Aug. 8, El Paso Natural Gas slashed delivery capacity at Ehrenberg, one of its two major interconnects to deliver Permian gas to SoCalGas system, as part of repair work efforts on Line 2000. Deliveries from El Paso to the other interconnect with SoCalGas, Topock, increased from Aug. 1-8 levels by around 70 MMcf/d to average 320 MMcf/d Aug. 9-15, pipeline nomination data shows.

The higher spot gas prices in Southern California have diverted Rockies gas to California that might have otherwise flowed into the Midwest. Data from Platts Analytics shows that Rockies-to-Southwest flows have increased around 90 MMcf/d to 2.6 Bcf/d Aug. 15 from Aug. 9, while Rockies flows to the Midwest dropped around 281 MMcf/d during the same time.

SoCalGas system storage sits near its fullest level since 2015, with pipeline nomination data showing levels at 89.02 Bcf Aug. 15.