Natural-Gas Prices Have Fallen Back to Earth—Except in California; Utility bills are
Natural-Gas Prices Have Fallen Back to Earth—Except in California; Utility bills are ballooning in the Golden State, where natural gas costs five times the benchmark U.S. priceDezember, Ryan. Wall Street Journal (Online); New York, N.Y.
Natural-gas prices have dropped around the world, but in California the cost of the heating and power-generation fuel remains aloft, threatening big bills for households and businesses.
Spot natural-gas prices in southern California have this month averaged about $19.40 per million British thermal units. That is roughly five times the U.S. benchmark, which is set at a pipeline junction in Louisiana called Henry Hub and has traded around $3.75 this month.
The premium was even greater last month, when gas in California at times exceeded $40 and Henry Hub spot prices dropped from more than $7 to less than $4.
The southern part of the state has faced the highest prices, but costs have risen even more sharply elsewhere in California. Average prices in December quintupled from a year earlier at five California trading hubs, according to S&P Global Market Intelligence.
California prices don't usually stray far from the benchmark and regional price spikes tend to last just a few days, allowing shocks to be averaged down before bills go out. The sustained surge and uncertainty over when a key pipeline will reopen to deliver relief has California utilities preparing customers for bigger bills.
San Diego Gas & Electric Co., which is owned by energy infrastructure company Sempra, said last week that the typical residential gas bill in January would be about $120 more than last year's as it passes on higher market prices. Electricity customers can expect higher charges too, though increases should be modest in comparison and are tied more to infrastructure improvements than expensive gas.
Another Sempra unit, Southern California Gas Co., sent emails this week warning that bills would likely be more than double what they were a year ago on account of chilly December weather and limited pipeline capacity . In another note to its 21.8 million customers, the country's largest gas utility suggested caulking windows, washing clothes in cold water and bundling up.
"Lowering your thermostat three to five degrees—if health permits—can save up to 10% on heating costs," SoCalGas said. The utility also said it contributed $1 million to its gas-assistance fund, which helps low-income households pay their bill.
Natural-gas prices have been a big contributor to inflation, lifting the cost to make electricity, plastic, fertilizer, steel, aluminum, glass and cardboard boxes. A broiling summer, hydropower lost to drought and resurgent industrial activity had already stretched global gas supplies when Russia invaded Ukraine in February and threw energy markets into turmoil.
European governments committed hundreds of billions of dollars to protect consumers and businesses from soaring prices. Manufacturers from International Paper Co. to Colgate-Palmolive Co. told investors that expensive gas pinched profits. The U.S. Energy Department warned that it could cost Americans a lot more to stay warm this winter.
U.S. inventories were so low that prices shot to shale-era highs this summer . Lately supplies have been bolstered by record U.S. production , mild weather and the monthslong outage of a Texas liquefied natural gas export terminal that left a lot of gas at home that would have otherwise been shipped overseas.
Prices have plunged as gas storage facilities refilled and forecasts predicted an abnormally warm January. Futures for February delivery ended Tuesday at $3.639 per million British thermal units, down 62% from the summer high.
Analysts have been slashing their price outlooks. On Tuesday, Bernstein analysts said they expect prices to average around $4 in 2023, down from $6 before the warm spell.
California has been one of the few places where temperatures have been colder than usual. Heating demand sapped already low inventories, reducing supplies along the Pacific Coast to about 33% below the five-year average, according to the Energy Information Administration. That compares with stockpiles across the Lower 48 states that ended the year 6.7% below normal.
Despite California's efforts to phase out natural-gas use and additions of solar, wind and biomass power generation that have reduced consumption, only Texas burns more natural gas. Two-thirds of California households are heated with gas. About 30% of the gas burned in the state fuels power plants.
Meanwhile, production in California is about half of what it was a decade ago and gas output in the Rockies, a key supplier, has also dwindled. Canadian exports flow into northern California while the south depends on the Permian Basin in West Texas, where big volumes of gas are produced by oil drillers. But there isn't much room to move more gas into California, said Ryan Smith, senior director at gas consulting firm East Daley Analytics.
"Everything is full," he said. "If you can get capacity into California you can make a lot of money."
Permian supplies have been crimped since August 2021, though, when Kinder Morgan Inc.'s 30-inch El Paso pipeline exploded in the Arizona desert, killing two people and injuring another. Since then, gas has been stranded at a West Texas trading hub, occasionally pushing the price to less than zero, meaning producers are paying to have it taken away.
A Kinder Morgan spokeswoman declined to discuss the closed pipeline. Analysts expect it will reopen by spring and go a long way toward easing California's gas crunch.
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