Winter weather, high gas demand in southwestern United States testing capacity on El Paso

Strong points

Westbound flows exceed 3.3 Bcf / d, highest since mid-August

El Paso force majeure continues as winter demand arrives

The out-of-town price of SoCal Gas is approaching $ 9 / MMBtu; forward stop the decline

Westward gas transmissions from the Permian Basin have been on the rise since early December, as colder weather fueled higher demand and prices in the southwestern United States, testing the current capacity limits of the natural gas from El Paso.

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Over the past week, westbound Permian flows have averaged over 3.3 billion cubic feet / d and are at their highest level since El Paso called force majeure on its line in heading west 2000 in August, based on data from S&P Global Platts Analytics.

Since mid-December, population-weighted temperatures in the southwest have fallen, falling below 50 degrees Fahrenheit as the region experiences its coldest weather since last January. Gas demand jumped in response, also hitting its highest level since last winter, averaging nearly 11.6 Bcf / d over the past week.

In El Paso-San Juan, spot prices have risen about 25% since early December, recently topping $ 5 / MMBtu and hitting more than $ 2 in premiums for Waha. At the town gate of SoCal Gas, prices have come close to $ 9 in recent trading – almost double the levels seen earlier this month, according to data from S&P Global Platts.

Maintenance

On the 2000 El Paso line, a previous pipeline failure is still under investigation with an order from the US Pipeline and Hazardous Materials Safety Administration reducing the operating pressure on the entire system, thereby placing the Black River compressor station line out of service on the California border, according to El Paso.

In an updated force majeure notice, released on December 17, El Paso said it still does not have a definitive timeline to return the system to full service.

Ongoing maintenance dramatically reduces the capacity of a critical westbound transmission line for Permian gas. Following the force majeure announcement in mid-August, westbound flows from the Permian Basin quickly fell below 3.4 Bcf / d where they have been since – until recently.

Stronger demand in the southwest is now starting to test the limits of El Paso’s current capacity to the west. Ongoing restrictions on Permian supply could fuel price spikes this winter – particularly at the city gate of SoCal Gas, which historically faces high prices during high demand seasons.

Before

Earlier this year, the announcement of El Paso’s force majeure caused a dramatic increase in winter gas prices at the city gate of SoCal Gas to over $ 13 / MMBtu due to concerns over West Texas supply restrictions.

Following a decision by the California Public Utilities Commission to temporarily expand SoCal Gas storage capacity at Aliso Canyon this winter, the futures market subsequently cooled. But following the surge in spot prices earlier in the month, the downtrend has since stopped.

Upon market settlement on December 17, the January futures contracts at the city gate of SoCal Gas were valued at $ 6.92 / MMBtu – up from levels closer to $ 6 in early December, according to data on S&P Global Platts M2MS futures contracts. Based on current predictions, the southwest could see more temperatures in the upper 40s from the next holiday weekend until the end of December.

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