Natural gas prices at the West Texas Waha hub are ending the summer by setting the wrong kind of records.

On Aug. 30, the hub set an all-time low in gas prices, reaching minus $4.80/MMbtu, according to a Reuters report.

The low bar came on the heels of another bad streak. On Aug. 21, the hub’s prices hit negative territory for the 26 consecutive days, making it the longest streak of negative pricing going back at least a decade, S&P Global reported. The price was last in positive territory on July 25 at $0.33/MMbtu.

Waha prices have been negative on 45% of the trading days in 2024, according to the U.S. Energy Information Administration. Natural gas prices go negative when the supply overshoots the demand at a hub, and producers have to pay shippers to take it off their hands.

Thanks to the continued development of crude wells in the Permian Basin, associated gas has increased beyond the available capacity of midstream companies to carry it away. The price has been especially volatile since the spring, with prices facing extra pressure because of pipeline maintenance or mild weather.

The weather was most likely to blame for the latest low, said Jack Weixel, senior director of natural gas at East Daley Analytics. It also hurt that the low came just as a holiday weekend started.

“Pipeline maintenance was not an issue on Friday (Aug. 30),” Weixel said in an email to Hart Energy. “What I think killed prices is that there was not enough demand.  A modest cold front (i.e. temps below 90 degrees) ahead of a holiday weekend was enough to weigh heavy on prices.  That cash price traded for the full three-day weekend.”

Weixel said the low Waha price isn’t an unsolvable problem, and the overall situation should improve in the next few months as more gas egress is expected to come online. For now, many producers are softening the blow through hedging.

“Producers can get value out of the gas by hedging, which I’m sure producers were aware of in 2022 when prices popped,” he said. “Many likely hedged at least summer strips going out for a few years on a certain percentage of their output.”

Midstream companies tend to rely on pipeline tolls for their income and, therefore, have a steady source of income regardless of the price. Also, if they have access to other price points, midstreamers can take advantage of higher market prices at other hubs.

Weixel pointed to the Matterhorn Express Pipeline, expected to go into service in the next three months. The Matterhorn is a 2.5 Bcf/d pipeline running out of the Permian to the Houston area. Once the line opens, carriers will be able bring more gas to the Houston area to get a Houston Ship Channel (HSC) price.

The new line, besides unclogging the bottleneck in the Permian, will likely bring the HSC price down while finally bringing the Waha price back into positive territory, he said.

Producers need the relief. A market that stays in negative territory becomes a revenue drain, even if the price of crude remains at profitable levels.

“For producers, eventually they run out of room to hedge,” Weixel said. “Fewer and fewer months out on the curve show a premium until, eventually, none of them do.”
 

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