Price spikes that plagued natural gas delivered to hubs across California and the Southwest in past summers are unlikely to repeat, even in the face of extreme heat, according to experts.
From June through August, weather forecasts show the probability of above-normal temperatures across the West varies, according to the California Independent System Operator (CAISO). The outlook showed the highest probability of above-normal temperatures across the Desert Southwest and lower chances of above-normal temperatures in coastal locations, particularly for Southern California.
CAISO’s Aditya Jayam Prabhakar, who directs Resource Assessment and Planning, said the analysis shows grid improvement heading into hot weather and “our most challenging time of the year.”
Prabhakar credited the improved outlook to “significant amounts of new resources added to the grid.” This includes more than 5,400 megawatts (MW) estimated to have been brought online in just the first six months of this year. No natural gas was included in the total. CAISO said the new generation would leave the grid operator with 2,550 MW to spare. For comparison, the 2022 Summer Assessment found the grid 1,700 MW short.
A Southern California buyer told NGI that going into this summer, “the picture looks a lot different.”
The buyer said, “if you look at previous years and break out electricity power costs,” natural gas storage had been “a big ticket item.”
A significant shift in the natural gas supply situation is making the difference this year, the buyer said. “The numbers have flipped so far off from where they were.”
Recently, the Southwest, including California, got the first taste of summer heat as temperatures surged into the upper 90s and 100s, propelling cooling demand.
However, spot gas prices at hubs across the Golden State moved only marginally higher. NGI’s PG&E Citygate added 26.0 cents to average $2.150/MMBtu on Tuesday (June 5), followed by a 29.0 cent loss a day later.
NGI’s SoCal Citygate averaged $1.655 on Tuesday, up 20.0 cents, and added another 7.0 cents midweek to $1.725. SoCal Border Avg. was $1.600 Wednesday, up 3.0 cents on the day, while Malin slid less than 1 cent day/day to $1.520.
All traded at a discount to the benchmark Henry Hub, which shed 35.5 cents Wednesday to $2.215, extending losses after a more than 86.0 cent gain Monday.
Prices are a far cry from the highs seen in previous summers when heat drove a surge in cooling demand.
For example, in 2022 from June 1-Aug. 31, high prices for natural gas at SoCal Citygate averaged $9.222, with a peak trade on Aug. 31 at $16.150, according to NGI’s Daily Historical Data. PG&E Citygate highs averaged $9.042, and SoCal Border Avg. mean high was $9.120, with a peak of $16.45 on the last day of the meteorological summer.
Though less inflated, prices also spiked in 2023. PG&E Citygate high prices averaged $4.564, and SoCal Citygate highs averaged $5.489. At the SoCal Broder Avg. the mean high was $4.176 in the June-August period, while Malin highs averaged $3.290.Those compared with a Henry Hub summer average high of $2.443.
Natural gas prices through this summer are expected to perform much better, according to CAISO. “In our analysis of the ISO grid, conditions look significantly better going into the summer of 2024 than they have in the past few years,” Prabhakar said.
Ample Storage, Hydro
The Pacific region, which includes California, Oregon, and Washington, appears to be well stocked to meet the summer cooling load, with 160 Bcf in the region’s storage facilities. That is 70.6% above the level at the same time last year and 21.3% higher than the five-year average, according to the U.S. Energy Information Administration’s (EIA) storage data for the week ended May 31.
The California buyer noted Southern California Gas Co. (SoCalGas) storage one year ago was 53 Bcf, below the five-year average band from 2018-2022 of 56 Bcf to 83 Bcf. “We are so far over that right now, with stocks at 102 Bcf.”
“Last year, SoCalGas core storage levels were near five-year lows at 43 Bcf in the end of May while SoCal Citygate averaged $2.292 for the month breaking $4.000 only once when storage was just under 40 Bcf,” NGI senior analyst Josten Mavez said.
“This year, core storage is quite full in comparison,” Mavez said. The latest reading at 77.4 Bcf on May 30 was 34 Bcf higher year/year. SoCal Citygate averaged 94.5 cents on May 24, the lowest price since NGI started reporting the hub’s prices.
One thing driving California’s supply turnaround happened last year. State regulators in August 2023 permitted SoCalGas to increase the maximum gas storage level at the Aliso Canyon facility to 68.8 Bcf from 41.6 Bcf. That is the highest amount deemed safe following a massive methane leak at the storage facility in 2015.
Additionally, “Last year, California was short on hydro supply, so natural gas had to fill the gap,” the California buyer said.
The drought conditions have improved this year, according to the CAISO. One indicator of water supply conditions for the coming year comes from major reservoir storage data. The latest data show the state’s major reservoir storage levels range between 86% and 149% of their historical averages.
CAISO said other types of alternative energy, including solar and wind, provided 41% of total in-state electricity generation last year and would continue to feed electric generation this summer. Additionally, as of June 1, the state had connected 8,635 MW of battery storage to the grid, up from 4,515 MW in 2022.
“The added battery storage helps move energy from one time of day to another,” CAISO spokesperson Anne Gonzales told NGI. That is “especially crucial during extreme heat, when energy from solar during the middle of the day can be stored and injected back to the grid in the late afternoon and evening as solar production rolls off the system.”
Supply of natural gas isn’t the only catalyst for inflated natural gas prices. In previous tight supply years, pipeline and storage facility maintenance have added to price volatility.
Pipeline Maintenance
Wood Mackenzie analyst Magnus Gilje told NGI that a few maintenance issues in the near term could potentially impact prices in the West.
Pacific Gas & Electric Co. is scheduled to begin maintenance at the Antioch Station on Tuesday (June 11), cutting Redwood Path capacity by up to 140 MMcf/d. Also, SoCalGas has maintenance beginning next Monday (June 10) through June 14 at Ehrenberg (EPNG) and Blythe (North Baja), which could possibly impact imports from Arizona. SoCalGas said the work is likely to have only a small effect. SoCalGas also said Aliso Canyon was shut-in today, restricting injections and withdrawals by up to 70 MMcf/d.
In any other year, “I would have gotten nervous about any maintenance activity,” the California buyer said. “Right now, I have absolutely no concerns.”
They noted Tuesday that SoCalGas had issued operational flow orders in 43 of the last 45 days. “They have too much gas on the system and are telling us to back it off, or we will penalize you.”
