Natural gas cash prices in Southern California have stayed below Henry Hub prices for most of August, with forward markets indicating this rare discount might last through October. This trend is attributed to strong storage inventories and high gas production in the Western US.
From August 10 to August 28, the SoCal Gas city-gate cash price averaged a discount of 28 cents per MMBtu compared to Henry Hub, according to Platts data, a part of S&P Global Commodity Insights. Earlier in the summer, the SoCal Gas price consistently lagged behind Henry Hub, with discounts averaging 64 cents per MMBtu in May and 70 cents in July. For the entire year of 2024, the discount has averaged just 24 cents per MMBtu. This is notable given that SoCal Gas typically commands a premium price, averaging over $4 per MMBtu more than Henry Hub in 2023 and around $3 per MMBtu in 2021 and 2022.
Looking forward, the September and October forward contracts for SoCal Gas city-gate showed a basis discount of 13 cents per MMBtu as of August 27, according to Platts M2MS data.
Storage Impact
High storage levels have put downward pressure on prices in California this summer, especially in the southern region, due to increased capacity at Aliso Canyon. As of August 28, the total supply on the SoCalGas system was over 107 Bcf, the highest level since 2015, up from 79 Bcf at the end of August 2023.
In August 2023, the California Public Utilities Commission approved a major expansion of storage capacity at Aliso Canyon to 68.6 Bcf, a 65% increase from the previous expansion to 41.16 Bcf in November 2021. The site’s capacity was previously reduced from 86 Bcf following a methane leak in 2015.
As of August 16, total inventories in the Pacific region were 288 Bcf, about 20% higher than the previous year and 10% above the five-year average, according to EIA data. Similarly, the EIA’s Mountain region reported 263 Bcf in storage as of August 16, the highest level since at least 2010, despite being midway through the injection season.
Production Trends
While the US has seen some reductions in gas production this summer, primarily from dry gas producers in Appalachia and the Haynesville Shale, production has remained strong in the Permian Basin and the Rockies. The Western US region has averaged 9 Bcf/d this summer, about 900 MMcf/d higher than last year, driven by strong output in New Mexico. Production has held steady despite low prices in Permian hubs like Waha and El Paso Permian, even increasing to 9.2 Bcf/d in August.
In the Rocky Mountain region, production has averaged 7.9 Bcf/d this summer, about 200 MMcf/d higher than the previous year.