A record-breaking heatwave and surge in cooling demand led to a spike in natural gas prices in California Aug. 17, with the highest levels seen so far this summer posted.
Temperatures across the state have averaged more than 82 degrees Fahrenheit since Aug. 14, roughly 8 F above normal, and are expected to remain above 80 F through the end of the week.
Excessive heat warnings are in effect through Aug. 20 across much of the state and neighboring regions from the US National Weather Service, with dangerously hot conditions and temperatures between 96 and 108 F expected, the highest of which will be away from the coast.
Demand on both the Southern California Gas and Pacific Gas & Electric systems has remained high since Aug. 14, averaging 2.87 Bcf/d and 2.64 Bcf/d, respectively, up around 630 MMcf/d (22%) and 700 MMcf/d (27%) compared with the month-to-date average, according to data from S&P Global Platts Analytics.
The jump in demand pushed gas pricing across major hubs to the highest levels seen so far this summer, with the basis to Henry Hub at SoCal Gas city-gate trading at $10.97/MMBtu for Aug. 18, after averaging only 88 cents/MMBtu since the start of August. This the first time basis has been observed at this level since February 20, 2019 when it settled at $19.68/MMBtu. SoCal Gas city-gate basis has settled above $10/MMBtu only eight times since February 2019, all of which occurred during that month.
Kern River Delivered basis, an important benchmark for gas flowing Southwest, also stood at $10.44/MMBtu, up more than $8 since Aug. 14 likely due to a Kern River Gas Transmission hot weather and high demand alert through Aug. 19.
Similarly, PG&E city-gate basis stood at $1.22/MMBtu, after averaging only 1 cent/MMBtu since Aug. 1.
High prices, intense heat leads to blackouts
Soaring gas prices and elevated cooling demand led to California Independent System Operator to declare a Stage 3 electrical emergency on the evening of Aug. 15, causing brief rolling blackouts for customers for the second night in a row.
The ISO — the state's power grid operator — enacted the Stage 3 emergency following the unexpected loss of a 470-MW power plant and loss of 1,000 MW of wind power amid already strong electricity demand due to the heat.
SoCal Gas taps into Aliso Canyon inventories
SoCal Gas has withdrawn from Aliso Canyon inventories for four consecutive days, the first time since early April, as the ongoing heatwave continues to put pressure on gas prices amid system constraints driven by the elevated demand.
Over 1 Bcf/d has been withdrawn from Aliso Canyon inventories since Aug. 13 and additional draws are likely this week as demand is expected to remain high. Platts Analytics data indicate Aug. 17's on-system demand will reach a summer-to-date high of about 3.38 Bcf, more than 1 Bcf/d above the prior 30-day average.
According to SoCal Gas' electronic bulletin board, on-system demand is forecast to average 3.15 Bcf/d through Aug. 21, likely implying strong withdrawals from storage facilities will persist. Since Aug. 13, SoCal Gas has posted net storage withdrawals of around 485 MMcf/d, as withdrawals hit 896 MMcf/d on Aug. 17.
Meantime, SoCal Gas announced Aug. 16 that pipeline remediation work along L235-2 would be completed by Aug. 17, reinstating about 170 MMcf/d of operational capacity in the Topock/Needles Area Zone.
Though receipt capacity will increase at the Topock/Needles receipt area, the overall Northern Zone receipt capacity will only increase marginally by 20 MMcf/d as Kramer Junction has been running at an raised capacity to largely offset the outage constraint. SoCal gas pricing should continue to experience strong upward pressure through the week despite slight alleviation of tightness as receipt capacity increases.
