Cash prices for US Southwest delivery locations surged in July 19 trading, driven higher by ongoing uncertainty over wildfire impacts on power imports.
Spot Kern River delivered, El Paso South Mainline and SoCal Gas – all pricing locations for gas flowing into the Southwest demand market – each soared over $2 higher than their prior-day settlement prices to reach the $6.40-$6.55/MMBtu range. The sharp price movement follows an ongoing pattern of heightened volatility for regional spot prices this season.
Unlike earlier regional spot gas price spikes this summer, which were driven largely by heat wave conditions boosting gas-fired power demand, temperatures are forecast to remain steady in the near-term. The National Weather Service forecast Los Angeles to see highs in the low-to-mid 80s Fahrenheit through July 23, slightly lower than weekend highs in the upper 80s F.
Instead, concern over power supply has raised the likelihood that gas-fired power generation will be ramped up in the near-term, particularly in Southern California.
Wildfire impacts
The active Bootleg Fire in southern Oregon has caused Bonneville Power Administration operators to continue to limit electricity flows along the high-voltage alternating current transmission intertie that sends Pacific Northwest hydropower generation into California. Capacity on the AC intertie was restricted to 3 GW as of July 19, down from a full capacity of 4.8 GW.
“We continue to operate the AC intertie at a lower capacity due to the potential for the fire to impact the three lines that share a corridor,” BPA spokeswoman Maryam Habibi said July 19.
The Bootleg Fire, which started July 6, has grown into one of the Pacific Northwest’s largest active fires so far this season and the most disruptive to interstate power transmission, leading to a 5.5 GW total loss of California power imports on July 10 that wasn’t substantially alleviated until July 13.
Thermal generation was quickly ramped up to make up for the loss of power imports, according to California Independent System Operator data. Cal-ISO data shows that thermal generation rose to average 380 GWh/d during July 9-12, up 52% from its prior 30-day average of 249 GWh/d.
Although the Bootleg Fire was 25% contained as of July 19, the National Wildfire Coordinating group projected that it will “continue to be extremely active” with further red flag warnings expected over the next several days.
Outlook
The volatility in Southwest spot gas prices is likely to continue through the rest of summer, with the upside risk from power transmission disruptions and future heat waves reflected in regional balance-of-summer strips.
Kern River, dlvd’s August-October strip has consistently averaged above $5/MMBtu since the initial cuts to power imports began, up more than 20 cents from the start of July, according to S&P Global Platts Analytics M2MS forward curve data.
Source: Platts