Pacific natural gas storage drops to lowest level in 13 years, sets stage for high summer prices

U.S. Pacific regional storage facilities, in contrast to the rest of the Lower 48, limped to the end of winter withdrawal season with the lightest level of natural gas inventories in more

than a decade, an analysis by East Daley Analytics found. While weather proved seasonally mild across much of the country in early 2023, a harsh winter in parts of California and neighboring

states fueled greater-than-average demand in the West. At the same time, pipeline limitations and maintenance events curtailed flows of natural gas to the region, limiting supply. Working

gas inventories in the Pacific region fell to 72 Bcf in mid-March, according to Energy Information Administration (EIA) data. That marked the lowest level in weekly regional estimates dating

to 2010, East Daley analysts said. The region had 74 Bcf in storage as of April 7 – the most recent EIA report period – leaving stocks there 57.5% below the five-year average. “Cumulative

gas-weighted heating degree days through the end of March were 16% above normal in the Pacific region, according to National Weather Service data, resulting in strong demand for heating and

power generation,” East Daley noted. “Low inventory will result in more demand from regional utilities to refill storage ahead of next winter,” the analysts said, pressuring regional prices

this spring and summer. “The last significant storage rebuild in the Pacific region occurred in 2019; if storage facilities refill at the same pace this year, then regional inventory would

return to normal seasonal levels by October.” That, however, could prove difficult given supply limits, adding to the likely upward price trajectory over the coming months. “Operators in

basins that directly feed the West Coast, including the Permian Basin, Rockies and Western Canada, stand to benefit the most,” East Daley analysts said. Hydropower in California could

benefit from melting snow in the spring – after years of drought – but natural gas prices suggest utilities are eager to buy up plenty of gas to ensure they can meet customer needs. Cash

prices early this week at SoCal Citygate hovered above $8.00/MMBtu – more than triple the national average. MAINTENANCE MAYHEM Importantly, California and areas of the Southwest rely heavily

on gas generated in the Permian of West Texas and New Mexico. However, major interruptions to pipeline flows have limited supplies. El Paso Natural Gas Pipeline (EPNG) in January returned

to full service its Line 2000, which had been shut since an explosion in August 2021. Its return brought on more than 0.5 Bcf/d of pipeline capacity heading west from Arizona to Southern

California. Reduced volumes on the EPNG conduit had forced Southern California utilities to draw heavily from storage to meet demand. The return of Line 2000 eased price pressure, but then

in February, Southern California Gas (SoCalGas) said a safety-related repair was needed on its Line 235. This temporarily offset the capacity that the revival of EPNG’s Line 2000 delivered,

and when combined with an unusually cold and snow-packed winter, left Pacific supplies precarious and prices relatively high. Now, in April, maintenance events are compounding matters.

Permian Highway Pipeline (PHP) at points in the first half of the month reduced available capacity to replace a valve connecting to Kinder Morgan Inc.’s (KMI) Tejas Pipeline. Additionally,

Gulf Coast Express (GCX) reduced system capacity for repairs and upgrades last week.   Then, on Monday, Southern California Gas Co. launched a planned pipeline remediation on Line 5000 that

is scheduled to continue through April 28, restricting EP-Ehrenberg/NBP-Blythe sub-zone capacity by 630 MMcf/d. SoCal Citygate spot prices on Monday jumped 92.0 cents to $8.390, according to

NGI data. Wood Mackenzie analysts said repair projects in the Permian also impact prices closer to home. When maintenance work limits the flow of gas to the West or South, it can result in

a glut of supplies and a big hit to prices in West Texas. “The last time we saw significant flow restrictions on PHP and GCX, Waha prices took a nosedive,” Wood Mackenzie analysts noted. “In

late October 2022, GCX capacity dropped from 2 Bcf/d to as low as 1 Bcf/d, with cash Waha falling from a level of $2.87 prior to the maintenance to -$1.17 during the event. Then, in early

December, PHP capacity plunged from 2.1 Bcf/d to 1.1 Bcf/d. Meanwhile, Waha spot prices went from $3.21 before the maintenance to an average of $0.64 during the first four days of the

event.” Waha prices averaged $1.425 on Monday – the lowest spot price point in the Lower 48. South Central storage reached 929 Bcf for the week of April 7. That was 35% above the five-year

average and represented the plumpest level of inventories of any region in the country. EIA said overall Lower 48 working gas inventories stood at 1,855 Bcf as of April 7 – 19% above the

five-year average.