Texas Gas Market Feels Heat From Record California Temperatures

(Bloomberg) -- Record-breaking temperatures in California are being felt all the way over in Texas’s natural gas market. 

The Golden State’s power grid expects electricity demand to hit a record Friday, and that’s sending prices in the southern part to the highest in almost a decade. In response, California has increased gas imports from West Texas to the most in two years.

Texas Gas Market Feels Heat From Record California Temperatures

Despite California’s efforts to deploy more renewable energy sources like solar and wind, the heat wave underscores the state’s continuing dependence on gas for power generation. It also shows the role that California can play as an outlet for a glut of gas along the Gulf coast.

"Deliveries peaked yesterday at the highest level since around late 2015," Jacob Fericy, an analyst at Bloomberg New Energy Finance, said in a phone interview Friday. 

The National Weather Service issued an excessive heat warning for most of California with record-breaking temperatures expected. Los Angeles is forecast to hit a high of 105 degrees Fahrenheit (41 Celsius) Friday, 20 degrees above normal, according to AccuWeather Inc.

"We’re looking at exceptionally strong heat for four straight days,” said Ross Fessenden, an analyst for Genscape Inc.

The Southern California day-ahead power price for 7 p.m. Friday, when demand is expected to crest, is the highest in nearly a decade. On Thursday, the spread between the Waha gas hub in West Texas, where the majority of Texas exports to California originate, and the national benchmark, was at the smallest discount since January.

Flows from Texas to New Mexico, where gas gets shipped to California along Kinder Morgan Inc.’s El Paso pipeline, on Thursday increased 4.4 percent to about 1.09 billion cubic feet a day.