The Daley Note: April 6, 2023
Natural gas price spreads to the West Coast continue to blow out as a series of storms have pummeled the region this winter. The market premium is pulling gas from across the country as pipeline shippers look to capitalize on the opportunity.
Gas on the West Coast has recently traded for nearly triple the price in other US regions. The SoCal border traded for $5.44/MMBtu Thursday (April 6) while Malin and the Sumas border point were over $6.00, according to Bloomberg price data. With spot Henry Hub gas at $2.17, the spread to the West Coast is nearly double underlying commodity prices.
Strong winter demand in the West has caused flows to reverse on Tallgrass Energy’s Rockies Express Pipeline (REX). Normally, volumes move from REX Zone 1 (CO/WY) to the Midwest and Northeast. But REX flows have reversed in the past at the Colorado-Nebraska border when the CIG-Opal price spread widens past $1.00.
The CIG-Opal spread has averaged $7.40/MMBtu for the latest six months, drawing REX volumes westward. Westbound flows at the CO-NE border hit a high in January, averaging 488 MMcf/d, according to pipeline nomination data (shown as negative flows in the figure). In March, REX transported an average of 191 MMcf/d westbound.
Given REX’s extensive pipeline connectivity, natural gas could be coming from several regions, including the Rockies, Western Canada, Midcontinent and Appalachia. Contract data filed with FERC shows at least one REX shipper, Stanchion Energy, recently booked backhaul agreements to move Marcellus and Utica gas from eastern Ohio to Opal, WY.
A cold winter in the western US has pushed regional demand well above average this heating season. Cumulative gas-weighted heating degree days have been 16% above normal in the Pacific region, according to National Weather Service data. At the same time, the extended outage of the El Paso system’s Line 2000 cut off ~600 MMcf/d of gas flows normally available from the Permian Basin. West Coast prices spiked to over $40/MMBtu in December 2022.
The 18-month outage on Line 2000 ended in mid-February, bringing West Texas gas prices up and potentially displacing some backhauled volumes on REX. However, West Coast demand will likely remain elevated in 2023 to refill depleted storage inventories, which are well below normal in the Pacific region for this time of year. - Maria Paz Urdaneta
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