Spot California Gas Climbs Increases as PG&E Banks Hydro

Natural gas in California surged to the highest seasonal level since 2010 as the state faces a drought emergency and Pacific Gas and Electric Co. cuts hydropower generation in efforts to cache water.

California precipitation was 25 percent of average as of Dec. 31, with runoff at 80 percent below normal, data compiled by the state Department of Water Resources show. Anticipating lower hydropower supplies, PG&E has cut its hydroelectric generation so it can store water to use when demand peaks later this year.

“Rather than generating it now, we’ve been banking it in reservoirs,” Paul Moreno, a Chico-based spokesman for the PG&E Corp. utility, said by telephone. “We’re drawing on other resources right now. In a normal year, we could generate power now and still have enough runoff and snow melt so that our reservoirs are pretty full at the beginning of summer, but this is not a normal year.”

Water shortages across the state are threatening to shrink hydropower supplies that make up about 15 percent of California’s electricity generation. Governor Jerry Brown declared the drought emergency Jan. 17 with reservoirs and rivers at critical levels after three years of little rain, including the driest on record.

Spot natural gas at PG&E’s Citygate has jumped 19 percent in the past month to $5.3928 per million British thermal units, surging to a four-year seasonal high, data compiled by Bloomberg show. Gas at Southern California Gas Co.’s Citygate has similarly climbed 20 percent to $5.4366.

Hydro Generation

Moreno said he didn’t immediately know how much PG&E has curtailed its hydroelectric generation to reserve supplies for later. Hydropower accounted for about 13 percent of the utility’s power needs in 2012, he said.

In-state, large hydropower supplies slid by almost 37 percent in 2012 after precipitation dropped to the third-lowest in 118 years. Edison International also shut the San Onofre nuclear power plant in Southern California that January. The lower hydro and nuclear power supplies boosted natural gas-fired generation by 33 percent, according to the state Energy Commission.

PG&E said in September that Unit 1 at the 2,300-megawatt Diablo Canyon plant, now California’s only nuclear station, will be shut for planned maintenance this spring.

Nuclear Refueling

“The market has yet to price in the increased gas demand from the electric power sector because of low hydro and high nuclear refueling,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. These factors together may boost gas demand by 1 billion cubic feet a day to 2 billion, she said.

Gas stockpiles in the U.S. West fell by 22 billion cubic feet to 327 billion in the week ended Jan. 24, the lowest level for this time of the year since 2008, U.S. Energy Information Administration data today showed. Supplies were 19 percent below year-earlier levels and 13 percent lower than the five-year average for the period.

Increased gas costs for generators will boost wholesale electricity prices in California, said Dennis Lucey, a Boston-based analyst with Genscape Inc., which tracks gas and power market data. “We do believe Northern California is going to see an even stronger price reaction because there is more hydro generation in the northern part of the state,” he said.

Wholesale power at Northern California’s NP15 hub, including San Francisco, for third-quarter deliveries jumped 29 percent this month to $54.50 a megawatt-hour, broker data compiled by Bloomberg show. The SP15 hub, which includes southern deliveries to Los Angeles and San Diego, jumped 28 percent to $57.

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