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California Hydropower Starting to Deplete

In the most literal sense, California’s Hydropower reserves are depleting. However, this summer, the fuel that ordinarily serves as a substitute for water is also running lower than usual. During a hot, dry summer, natural gas usually serves two purposes for California’s electrical grid. To begin with, it bridges the gap created by decreased Hydropower.

Second, it manages much of the state’s peak in electricity demand in the early evening, when solar output declines, which is particularly significant if the surge is powering a lot of air conditioning. Summer is usually a fantastic time for anyone selling gas in the West, and this year appears to be no exception. The gas market in California is shaky. As Bloomberg NEF’s Jade Patterson points out, PG&E Corp.’s recent announcement of maintenance on a key pipeline through the end of June led the premium on local gas supplies to surge to its highest level since February.

California Hydropower Starting to DepleteIt didn’t help that a heatwave swept over the West simultaneously, causing power plants in California and Nevada to burn twice as much gas as they had the previous month. PG&E has also just reclassified nearly 50 billion cubic feet of its gas inventory as “base” gas, which stays in the tank to keep the pressure up, rather than “working” gas, which can be used to satisfy demand.

Overall, California appears to be entering the throes of an incredibly taxing summer with the lowest gas stockpile in more than a decade. One explanation for this has to do with earlier occurrences in Texas, physically and philosophically apart from Sacramento. California generates very little gas and relies on imports from the Rockies, Canada (through the Pacific Northwest), and Texas to meet its needs (via the Southwest).

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