Exploration & Production

Liquefied Natural Gas (LNG)

Basis Differentials Scorecard: The Dilemma Of Diffs

Differentials between basins are subject to wide swings as new pipeline capacity comes online.

Thu, 10/10/2019 - 08:00 AM

Basin Differentials Scorecard: The Dilemma Of Diffs

Adding pipeline capacity may at times have the effect of eroding the price advantage that was initially sought, ending up in a “Catch 22” situation. (Source: Hart Energy/Shutterstock.com)

They say that “timing is everything,” and certainly that can be the case with the differentials, or “diffs,” prevailing between basins. Producers obviously want to capture higher realized prices when they can. But adding pipeline capacity may at times have the effect of eroding the price advantage that was initially sought, ending up in a “Catch 22” situation.

That said, who doesn’t want a sophisticated network of interlocking pipelines that can efficiently carry crude, natural gas and NGL to market?

In the case of natural gas, where price variations are termed “basis,” one producer recently suffered a price swing of about $1.95 per thousand cubic feet (Mcf) for its natural gas produced in the Permian Basin. The producer’s average realized price in the Permian fell to a negative price of roughly $0.45/Mcf in the second quarter, down from just under $1.50/Mcf in the year earlier period.

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