A heat wave Monday led to the most expensive natural gas spot trades recorded at SoCal Citygate going back to at least 2008, as a volatile mixture of elevated gas-fired electric demand and ongoing supply constraints blew the roof off of prices. Largely driven by gains in California and the Desert Southwest, the NGI National Spot Gas Average surged 51 cents to $3.22/MMBtu.
The futures market, meanwhile, demonstrated its apathy toward recent summer heat and persistent storage deficits, as some cooler medium-term forecast trends and high production estimates over the weekend saw prices erase gains from last week’s leaner-than-expected inventory report. The August Nymex futures contract slid 3.6 cents to settle at $2.721, near the day’s low of $2.713. September dropped 3.3 cents to settle at $2.695, while January settled at $2.966, down 2.2 cents.
The story of the day, though, was SoCal Citygate, where price action Monday made last week’s basis blowouts seem like child’s play. Average prices inside the citygate nearly tripled Friday’s already elevated average, rocketing $25.20 higher day/day to $39.24, the highest Daily GPI average price on record going back to 2008. Individual trades went as high as $41 Monday.
SoCal Citygate posted a run of elevated spot prices last week amid temperatures in Southern California that were above average but not particularly extreme. Forecasts Monday showed the mercury rising this week in California and further upstream in the Desert Southwest, suggesting further competition to get gas into constrained Southern California.
Radiant Solutions was calling for Burbank, CA, to see highs surpassing 100 degrees over the next several days, with temperatures averaging around 12-15 degrees warmer than usual. Meanwhile, AccuWeather was calling for Phoenix to see highs reach 115 degrees Tuesday, about 9 degrees hotter than average.
With ongoing restrictions on pipeline imports and storage, SoCal Citygate has shown itself to be prone to volatility even with seemingly moderate demand. The location has seen frequent price spikes since new pipeline disruptions emerged last fall. In February, prices climbed as high as $28 and averaged as high as $19.58, according to Daily GPI historical data.
Sempra Energy utilities Southern California Gas Co. (SoCalGas) and San Diego Gas & Electric Co. on Monday reinstated a system-wide curtailment until further notice, citing a heat-driven increase in “demand for natural gas electric generation.”
Intercontinental Exchange reported next-day peak power prices for Southern California’s SP-15 zone averaging $312.57/MWh Monday, while in Arizona peak prices in Palo Verde for Tuesday delivery averaged $348.83/MWh.
The California Independent System Operator (CAISO) was forecasting Tuesday’s peak load to reach 48,179 MW, higher than a forecast peak Monday of 44,747 MW and approaching the historical peak of 50,270 MW. The grid operator issued a restricted maintenance operation alert Monday, noting that “market participants are cautioned to avoid actions which may jeopardize generator and/or transmission availability.” CAISO also issued a flex alert to customers calling for “voluntary electricity conservation” for Tuesday and Wednesday.
“Consumers are urged to conserve electricity especially during the late afternoon and evening when air conditioners typically are at peak use,” CAISO said. “Consumers can help avoid power interruptions by turning off all unnecessary lights, using major appliances before 5 p.m. and after 9 p.m., and setting air conditions to 78 degrees or higher.”
SoCalGas was estimating total demand for Monday of just above 3 million Dth/d, rising as the week progresses. Total receipts have been limited to around 2.6 million Dth/d for the utility, which also has restricted use of its Aliso Canyon storage facility.
The madness at SoCal Citygate spread to the rest of the region Monday, as SoCal Border Average saw trades hit as high as $25 on the way to averaging $10.48, up $7.13 on the day. Kern Delivery spiked $17.01 to average $20.72, while El Paso S. Mainline/N. Baja jumped $7.31 to $11.08.
El Paso Natural Gas declared a force majeure Monday at its Willcox Compressor Station in southeastern Arizona, notifying shippers that its “WILCLAT” constraint point would be reduced from 330,720 Dth/d to 180,775 Dth/d starting with the evening cycle of Tuesday’s gas day.
Further upstream, most Rockies points climbed by double digits. Cheyenne Hub added 12 cents to $2.54.
Meanwhile, prices in Texas mostly moved lower Monday even as the Lone Star State has been dealing with triple-digit heat of its own. Radiant was forecasting highs in the upper 90s to low 100s over the next several days in Dallas and Houston. In East Texas, Houston Ship Channel shed a nickel to $2.84. In West Texas, Waha tumbled 11 cents to $2.02.
Starting Tuesday and continuing through Friday, planned maintenance at Natural Gas Pipeline Co. of America’s (NGPL) CS 112 in Moore County, TX, is expected to restrict northbound capacity out of the Permian Basin, according to Genscape Inc. analyst Vanessa Witte.
The maintenance is expected to limit volumes from Segment 8 of NGPL’s Permian Zone flowing north through CS 112 into Segment 10 to 0% of contract firm maximum daily quantity, according to Witte.
“In the past week, volumes from the Permian onto Segment 8 taken at ‘Sta 167 to Sta 112’ have decreased to around 150 MMcf/d from an average of around 270 MMcf/d since the beginning of the month,” Witte said. “In addition to flow entering Segment 8, receipts at El Paso/NGPL Tap Moore are likely to be cut as these nominations typically travel northbound into Segment 10 as well.
“Gas received south of CS 112 will be available for deliveries into Segment 8, however the capacity of the few delivery meters available is not high enough to displace all of the Permian receipts.”
As for the futures market, NatGasWeather attributed Monday’s sell-off to guidance over the weekend trending cooler over the northern and central United States for late this week and early next, as well as “reports of weekend production setting new all-time records.”
Midday weather data trended hotter “with a strong upper ridge over the East” in the first few days of August. Meanwhile, “there’s still this week’s storage report that should increase deficits in supplies versus the five-year average to near 545-550 Bcf,” according to the firm. “So there’s still a rather bullish background state in terms of supply.
“Because of this, we believe any hotter trends in early August over the East and the markets could notice,” the firm said. “If there were hotter trends and prices fail to rise, it would suggest record production remains too strong for the markets to get over.”
Bespoke Weather Services said it viewed the long-term forecasts Monday as not warm enough to offset a “very cool” last few days of July.
“The result is that the August contract struggled to bounce off support” Monday, “as initial power burn data appeared looser as well even with prices at slightly lower levels,” Bespoke said. The market’s reactions to model runs Monday showed that it’s “still sensitive to weather, which makes sense as we move through peak cooling demand season.
“Similarly, weather will likely play an increased role as balance data remains less credible; last week’s” Energy Information Administration (EIA) storage report “indicated that either production was overstated in daily data or demand understated,” the firm said. “Either way, for now at least the market seems to be treating that as a one-off event...However, another EIA print that confirms last week’s could certainly be supportive for this market.”