How California’s Drought Puts Pressure On Natural Gas Prices In Texas

Because California’s hydropower generation capacity is limited by the water shortage, the state is importing more natural gas, including gas produced in Texas.

By Kristen Cabrera, Alexandra Hart & Shelly BrisbinJune 28, 2021 12:37 pm

A drought in California is stressing the power grid, forcing that state to use more natural gas. So, is this demand driving up natural gas prices in Texas?

Matt Smith, director of commodity research at ClipperData told Texas Standard that the drought means hydropower generation in California is down significantly. Hoover Dam, which supplies hydroelectric power for California, Nevada and Arizona, has cut capacity by one-quarter, for example.

“California is relying more on other sources, on fossil fuels, as summer heats up,” Smith said.

The state imports more than 90% of the natural gas it uses from out of state, and the need to bring in more has affected prices.

“The southwest gas is ultimately coming from Texas,” Smith said.

Natural gas prices behave somewhat like oil prices, he says.

“After all, a lot of natural gas production in Texas is from what’s known as ‘associated gas,’ which is essentially natural gas which is coming out of the ground as a byproduct as producers go after the more valuable product of crude oil,” he said.

Even though commodity prices are up, Smith says production is down right now as drillers cut back on costs.

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