Air conditioners are running full blast in California as a heat wave grips the state, pushing up spot electricity prices to its highest seasonal level in six years and providing a litmus test for natural gas prices and related exchange traded funds for the summer months.
The National Weather Service issued a heat advisory for California Monday, warning that some areas could rise to 100 degrees Fahrenheit, or 38 degrees Celsius, Bloomberg reports.
Given the state’s heavy reliance on gas-generated electricity, the heat can provide a good indicator for how gas prices will react over the summer months.
“This will be a fairly good test of the market being that it is early to get this kind of heat and our eyes should be focused on California given their lack of hydro and lack of nukes,” Stephen Schork, president of Schork Group Inc., said in thee article. “We’re going to get greater volatility and greater prices for gas and power.”
California is dealing with a record drought that has diminished hydroelectric supplies. Additionally, Edison permanently shut down the San Onofre nuclear facility in January 2012 due to safety concerns.
Natural gas prices remain elevated after a series of polar vortex storms increased demand over the winter months and push gas inventories to record lows. West coast gas inventories were 203 billion cubic feet in the week ended May 2, or 37% below the five-year average and 41% below year-over-year levels. Supplies touched a 10-year low in late March. [Natural Gas ETFs Find Support as EIA Raises Forecast]