SoCal city-gate’s summer strip weakens on robust storage, additional procurement

SoCalGas storage up a net 10 Bcf over June, July

Additional energy procurement for grid resiliency requested July 1

The remainder-of-summer forward curve for SoCal city-gate shed 65 cents over the last seven trade days, as it becomes clear that recent heat waves failed to erode SoCalGas system’s storage levels.

SoCal city-gate’s August–October 2021 average fell to $6.13/MMBtu on July 7 from $6.78/MMBtu on June 28, according to the most recent S&P Global Platts Analytics M2MS forward curve data.

The steepest losses have been concentrated in the August contract, which fell 68 cents to $6.82/MMBtu. The September contract dropped 49 cents to $6.46/MMBtu and October shed 32 cents to $5.12/MMBtu over the same seven-day timeframe.

Storage

Despite an unseasonably warm June that spiked highs across the West Coast into the triple-digits and maintenance-related inflow restrictions, SoCalGas system storage continued a healthy pace of net injections, providing cushioning for possible demand spikes later in the summer.

As of July 8, SoCalGas inventories stood at 77.4 Bcf, only 1 Bcf below this time last year, according to Platts Analytics’ data. SoCalGas has added nearly 10 Bcf into net storage since June 1, when inventories stood at 67.5 Bcf.

The normal pace of injections can partly be explained by inflows finding alternate routes into the system. An expansive summer maintenance program has limited the pipeline system’s typical inflow capacity, with capacity reductions scheduled on the Needles-Topock Zone and L-4000 line in the Northern Zone through the end of September.

Pipeline nomination data showed that flows into SoCalGas system from PG&E at Wheeler Ridge ramped up to surpass 300 MMcf/d for both June and July, with month-to-date July flows averaging a five-year monthly high of 392 MMcf/d.

The healthy state of SoCalGas system’s storage levels are partially obscured in the US Energy Information Administration’s weekly storage numbers for the Pacific region. This is because the PG&E storage system reclassified 51 Bcf in its storage system from working gas to base gas in mid-June, causing the Pacific storage numbers to fall to 14% below the five-year average.

The net effect of the reclassification on regional gas fundamentals has proved minimal. Looking at the seasonal peaks and troughs for PG&E over the last couple years, inventories have not even dipped below 100 Bcf, reaffirming the volumes now classified as base gas were unlikely to be called upon, according to Platts Analytics.

Additional procurement

Beyond the natural gas supply and demand dynamics, a July 1 decision by the California Public Utilities Commission and California Energy Commission to procure additional energy resources for the summer has also likely weakened the SoCal city-gate gas forward curve.

The CPUC had previously directed California’s three investor-owned utilities — Pacific Gas and Electric, Southern California Edison Company, San Diego Gas & Electric Company — to collectively procure at least 1,000 MW of incremental resources able to serve peak demand hours for summer 2021 in March.

However, worsening drought conditions have effectively erased the incremental procurement already taken, with CPUC and CAISO estimating that hydro capacity has been reduced by about 1,000 MW.

Lower-than-expected thermal capacity, uncertain development of demand-side sources and delays in new incremental resources coming online have further strained California’s grid resiliency outlook and contributed to the additional procurement decision, according to a letter the presidents of CPUC and CEC sent to the CEO of CAISO on July 1.