Almost Is Never Enough - EPNG Outage Worsens Gas Transportation Constraints to the U.S. West

The U.S. West Coast natural gas market is at the forefront of the energy transition, but regional natural gas prices are instead signaling the need for construction of newbuild gas pipeline capacity to the region. Without it, markets west of the Permian Basin have been hard-pressed to take advantage of the supply growth in West Texas and have struggled to consistently maintain adequate natural gas supplies for some time now. To make matters worse, last month, a segment of El Paso Natural Gas Pipeline (EPNG), a primary artery for moving Permian gas west, experienced a rupture, further tightening supplies. Today, we highlight the major market impacts and longer-term implications of the pipeline blast and subsequent flow restrictions.

Natural gas transportation constraints and supply shortages have been building for a while now along the West Coast, particularly in California. The Golden State has experienced radical shifts for the better part of the past decade, from the permanent shutdown in 2013 of the 2,250-MW San Onofre nuclear facility (see Play Me a Songs Mr. Generator Man and California Schemin’) — a major power source for the Los Angeles metro area — to ­­­an aggressive expansion of renewable energy (first wind, then a lot of solar; see Here Comes the Sun and California Dreamin’), which also involved shutting down older, less-efficient gas-fired power plants, and regulatory restrictions on SoCalGas’s Aliso Canyon gas storage facility at one point after it sprung a leak in 2015. Just this July, Pacific Gas & Electric Co. (PG&E) also reclassified 51 Bcf of working gas in storage to reflect accounting changes authorized in a 2019 rate case. Working gas is available to utilities to call on, while base gas is the permanent inventory required to maintain the pressure and integrity of the storage reservoir, so the reclassification further reduced gas supply availability within the state.

These changes have made the region vulnerable to gas shortages, transportation and storage constraints, power outages and price spikes, particularly during extreme weather (see Electrical Storm). All in all, they have lowered gas usage in the region but — counterintuitively — not the need for inflows of gas from other regions or gas prices. What’s more, price volatility in the local gas market has increased. Case in point, prices at the SoCal Citygate pricing hub have spiked to double- or triple-digit prices 37 times in NGI’s historical daily price data, which goes back to October 2008 for this particular hub, 35 of those times just since 2018 (Figure 1).