Forwards prices at the SoCal Gas city-gate are up sharply over the past month, following the announcement of summer-long maintenance work in the utility's service area. Gains along the forward curve, though, have accrued disproportionally to the summer strip–potentially overlooking the risk to winter prices posed heavy reliance on storage during the upcoming cooling season.
Beginning May 1, SoCal Gas is scheduled to begin major maintenance work on its L-4000 line in the Northern Zone and at the Needles Topock border-receipt area.The maintenance projects, which run through September 30, will reduce capacity in the Northern Zone by some 720 MMcf/d, or about 45%, from its usual operating capacity of 1.59 Bcf/d. The work will also reduce flows through the Needles-Topock zone by about 90 MMcf/d–cutting supply receipts from Transwestern Pipeline at Needles and from El Paso Natural Gas Pipeline at Topock.
Forward marketOver the past month, the city-gate forward market has rallied in reaction to SoCal Gas' system maintenance announcement, pushing prices for the July, August and September calendar months to summer-season highs at $5.73, $5.80 and $5.38/MMBtu, respectively, S&P Global Platts' most recently published M2MS data shows.
Recent gains, though, have accrued disproportionally to the July-August-September strip, which is up more than 90 cents since late March. Prices for this winter's peak heating season from December to February, have only gained about 65 cents over the same period.
Currently pricing at an average $5.63/MMBtu, the 2021-2022 winter-strip could be significantly undervalued, considering the potential impact of this summer's maintenance on SoCal Gas storage.
Storage, supplyAs of April 22, SoCal inventories are currently estimated at 57.7 Bcf–about 10% above year-ago levels and nearly 18% higher compared with the prior three-year average, Platts Analytics data shows.
The head start to filling storage this season to healthy, pre-winter levels around 80 Bcf could be challenged by upcoming maintenance, though, which threatens to reduce available gas supply in the SoCal Gas service area.
The peak cooling-demand period from late July to early September poses a particular risk to injections. Over the past two summers, SoCal inventory has actually declined modestly during those months as gas was withdrawn to keep pace with strong power burn demand.
The risk for a late-season decline this summer looks even more pronounced. In addition to maintenance-related supply restrictions, southern California now also faces steep competition for Permian gas–historically a critical supplier to the Southwest.
Following the startup of Kinder Morgan's Permian Highway Pipeline in early January, westbound transmissions from the Permian Basin have fallen sharply compared to year-ago levels. From January 1 to date, West Texas flows to the Southwest have averaged about 3.35 Bcf/d–down 440 MMcf/d, or nearly 12%, compared with the 2020 year-to-date average, Platts Analytics data shows.
