Home Markets As US Lower 48 warms, West Coast gas market preps for another wintry blast

As US Lower 48 warms, West Coast gas market preps for another wintry blast

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February forwards at SoCalGas, PG&E rebound

40-degree lows to return to SoCal in February

Pacific Region gas storage surplus could narrow

US West Coast gas markets could see another rally for demand and prices heading into February as cold, wet weather across the region deviates from a warming trend for states east of the Rockies.

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According to the US National Weather Service, states from Washington, Oregon and California to the Rockies and Desert Southwest will see below-average temperatures in the period from Feb. 2-8. California alone is most at risk with a 60% to 70% chance for cooler weather for much of the state in early February. The probabilities for colder weather in the surrounding region, including the Pacific Northwest, Nevada and Arizona are slightly lower, according to the eight to 14-day outlook.

At the regional level, population-weighted temperatures across the Western US are expected to remain in the low-50s Fahrenheit through the first week of February, trending as much as 7-8 degrees below normal according to a 14-day forecast from S&P Global Commodity Insights. The same outlook shows regionwide gas demand rising to over 13 Bcf/d early next month, up from about 10 Bcf/d currently.

With the coldest weather expected to hit California, forward gas prices there have already rebounded in recent trading. At the PG&E city-gate in northern California, the February 2024 gas contract settled at $5.37/MMBtu on Jan. 25, up $1.15, or about 27%, from a recent low at just $4.22 on Jan. 19. The month-ahead forward price at the SoCalGas city-gate in Los Angeles has made similar gains, rising to over $5.35/MMBtu on Jan. 25, up from $4.07 less than one week ago, Platts M2MS forwards data showed.

Pacific Region storage

With temperatures across much of the US Lower 48 states expected to warm into early February, many market analysts are projecting a V-shaped recovery for the US gas storage surplus next month.

For the West Coast market, though, the regional inventory surplus could continue to narrow over the weeks ahead. On Jan. 25, the US Energy Information Administration reported a 29 Bcf drawdown from Pacific Region storage in the prior week marking the largest single-week withdrawal since June 2021. As a result, the Pacific Region storage surplus fell sharply to just 22 Bcf in the week to Jan. 19, down from 45 Bcf in the week prior and an annual high at 56 Bcf in the first week of January, data from EIA showed.

According to a forecast from S&P Global Commodity Insights, the Pacific Region inventory surplus should widen by just 3 Bcf in the week to Jan. 26. In the week following, though, colder weather in California and the surrounding states could increase reliance on regional storage as heating demand spikes.

Inventories in the SoCalGas service area could be among the hardest hit. According to a forecast from AccuWeather, the Los Angeles metro-area is expected to see temperatures fall to the upper-40s F in the first week of February. Assuming the forecast is accurate, the region would see temperatures hit lows only several degrees above those recorded in mid-January when the SoCalGas utility pulled over 8.5 Bcf from inventory – nearly 30% of the Pacific Region total reported by EIA for the week to Jan. 19.

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