California summer spot gas price trends reshuffle on storage, inflows

Spot natural gas pricing trends in Northern California and Southern California have diverged sharply this summer from those observed last summer, driven by different regional gas storage policies and access to gas inflows.

Northern California’s PG&E, city-gate spot gas averaged a 94-cent premium to cash Henry Hub in June and July, nearly double the 57-cent premium that Southern California’s SoCal Gas, city-gate averaged for the same time, data from S&P Global Commodity Insights shows. SoCal Gas, city-gate saw the larger premiums last summer, with SoCal Gas city-gates having averaged a $2.25 premium to cash Henry Hub in June and July 2021, compared to PG&E city-gate’ premium of $1.28/MMBtu for the same time.

Above-average demand in the SoCalGas footprint would suggest the opposite of current trends. Gas demand in the SoCalGas service area exceeded the five-year average for 25%-30% of the month, data from Platts Analytics shows, while gas demand in the PG&E footprint has come in well below the five-year average for all but a few days.

Gas storage

Gas storage policy changes made in 2021 are the main driver behind the shifting price trends, resulting in increased storage levels in Southern California and reduced levels in Northern California.
On Nov. 4, the California Public Utility Commission voted to expand the maximum allowed working gas capacity at SoCalGas’ Aliso Canyon gas storage facility to 41 Bcf from 34 Bcf. Aliso Canyon, which is SoCalGas’ largest gas storage facility, had seen its maximum allowed capacity sharply reduced after a major leak was discovered in October 2015.

With more available storage capacity at Aliso Canyon, the volume of gas held in storage in the SoCalGas service area has risen to levels not seen since 2015. Total gas in storage sat at 88.82 Bcf Aug. 1, up 14.28 Bcf from its three-year average.

PG&E saw its working gas volumes shrink in 2022 compared to past years, following a June 11, 2021 decision by the CPUC to reclassify 51 Bcf of working gas as base gas. As of July 31, total working gas in the PG&E footprint, excluding imbalance gas, sat at 12.55 Bcf, down from the 21.2 Bcf observed on the same day in 2021.

Inflows from the Rockies

Shifting inflows of gas into the two regions has also altered California spot gas pricing.

The Rockies, a major source of gas supply to both regions, has delivered much less gas to the Northwest year-to-date than the same time in 2021, while flows to the Southwest have been minimally affected.

Deliveries of Rockies gas on Ruby Pipeline to Malin on the Oregon-California border have come in 218 MMcf/d, or 37%, lower year-to-date than the same time last year, data from Platts Analytics shows.

Total Rockies-to-Southwest flows have averaged 2.04 Bcf so far in 2022, down just 121 MMcf, or 6%, from the same time in 2021.

Power dynamics

Spot gas premiums in both regions have come in lower so far this summer than last, as higher generation from low-carbon sources hydro and solar reduced power sector demand for gas.

With improved hydro conditions this year, hydro-powered generation averaged 7% of total market share in June and July, 2 percentage points higher year over year, according to California Independent System Operator data. In addition, solar generation was up 3 points to average nearly 20% of the mix and wind increased 2.2 point to average 11% market share.

With more hydro, wind and solar generation, thermal’s market share averaged 33.4% for June and July, a drop of nearly 5 percentage points from a year ago, according to CAISO data.

Northern California power prices have also risen above prices in the south.

CAISO’s NP15 on-peak day-ahead locational marginal prices averaged about $75.25/MWh in June and July, a nearly $2.75 premium to SP15 on-peak day-ahead LMPs, a flip compared to last year when SP15 had about a 75-cent premium, according to CAISO data.
Source: Platts