SoCal Border

Usually when we write about natural gas markets in the Western third of the U.S., we spotlight the Permian Basin and its Waha gas hub. The focus on Waha has been for good reason, as the last three years have been nothing if not exciting in the Permian’s primary gas market. The basin’s huge volume of associated gas production and Waha’s volatility and deeply negative basis — even negative absolute prices — have made the West Texas market eminently watchable. Though a flurry of new pipelines out of the Permian have helped tame the market somewhat recently and driven Waha to the point of positive basis on its best days, the markets west of the Permian are a different story. They have seen very little in the way of new gas infrastructure, and the constrained inbound pipeline capacity has recently driven prices in the Desert Southwest to some incredible premiums. In today’s blog, we take a look at the gas markets there.

After averaging more than a nickel below Henry Hub all this year, the California Border natural gas price spiked to 66 cents/MMbtu above Henry on Friday.  This kind of price volatility is no surprise to anyone following the radical shifts in California energy markets, starting five years ago when the state legislature enacted its 33%-by-2020 renewable portfolio standard (RPS) law.  By mid-2015, more than 14,000 MW of new solar and wind power had pulled down gas demand in California to the point that natural gas prices at the SoCal Border were averaging a negative basis to Henry Hub.  Still not satisfied, last year California legislators voted to establish a 50% renewables target for 2030.  On top of it all, the West Coast was coming up on a La Niña year that would bring more rain –– and hydroelectric generation –– to the Pacific Northwest and eventually into California. With all that renewable power (solar, wind and hydro), California seemed headed for an unprecedented period of low gas prices, but it did not turn out to be so simple.  In today’s blog, we continue our look at California’s power and gas markets with the events and drivers that shaped late 2015 and the first six-plus months of 2016, and consider what’s to come. 

California energy markets look quite a bit different today than they did five years ago when the state enacted a renewable portfolio standard (RPS) law that requires every utility and other electricity retailer to serve 33% of their load with renewable energy by 2020. Since then, California has seen huge changes in its energy balances – it shut down the nuclear generating plants at San Onofre, regulators expedited the build-out of new transmission lines to get more wind and solar power into the market, the state implemented a carbon cap-and-trade program, the legislature increased the RPS target to 50%, and SoCal Gas’s Aliso Canyon natural gas storage facility sprung a leak.  Today, we look at the changes in California’s energy markets since 2011, and what they mean for future developments in a state far out front in the adoption of renewables and environmental regulation.