The combination of increased natural gas demand in Southern California, due to maintenance on two nuclear generators, and pipeline constraints into the region has contributed to an increase in the basis, or the differential between regional prices and the benchmark Henry Hub price. The Southern California representative price is now about at parity with the Northern California PG&E Citygate pricing point, which is usually several cents above the Southern California price. Additionally, as the Henry Hub has continued a downward trend over the past couple of weeks, California prices have declined less and widened the basis. Among major infrastructure issues:
- Two nuclear units (totaling more than 2,000 MW) at the San Onofre Nuclear Generating Station, located south of San Clemente, are currently offline and are expected to remain out of service until at least the end of July, a few months longer than was originally planned. BENTEK Energy LLC (Bentek) estimates that the outage of the nuclear generators could mean additional demand of about 0.5 billion cubic feet (Bcf) per day of natural gas for power burn during the peak summer months if there are further delays.
- Southern California Gas is conducting maintenance on its system through May 4 and restricting all receipts on its North Needles point, which had averaged close to 490 million cubic feet (MMcf) per day before the outage, according to Bentek reports.
- Kern River cut secondary gas capacity for a few days this week at a compressor station in Southern Nevada, close to where the pipeline enters Southern California.
The Henry Hub day-ahead price remained below $2.00 per MMBtu throughout the week and traded in a narrow 4 cent range with a high of $1.91 per MMBtu last Wednesday, a dip to $1.87 per MMBtu on Thursday and Friday, and after advancing slightly Monday and Tuesday closed the week at a low of $1.87 per MMBtu yesterday. Numerous other spot market pricing points across the country also remained below the $2.00 per MMBtu mark throughout the week.
At the NYMEX, the May 2012 contract fell slightly, from $1.984 per MMBtu last Wednesday to $1.951 per MMBtu yesterday, a decrease of 3.3 cents (1.7 percent). With the exception of Monday, when it reached $2.016 per MMBtu, the contract remained under the $2.00 per MMBtu level throughout the week. The 12-Month Strip (average of May 2012 to April 2013 contracts) remained above $2.60 per MMBtu throughout the week, closing yesterday at a low of $2.612 per MMBtu, down for the week 8.6 cents per MMBtu (3.2 percent) from last Wednesday’s high of $2.698 per MMBtu.