Next-day natural gas prices for April 3 at the Waha hub in West Texas plunged to record negative levels as a result of pipeline constraints stranding gas in the Permian Basin.
Spot prices at the Waha hub fell to minus $3.38 per million British thermal units (MMBtu) for April 3 from minus 2 cents for April 2, according to data from the Intercontinental Exchange (ICE). That easily beat the prior all-time next-day low of minus $1.99 for March 29.
Prices have been negative in the real-time or next-day market since March 22, meaning drillers have had to pay those with pipeline capacity to take the gas.
The negative prices started soon after El Paso Natural Gas Pipeline declared a force majeure on March 18 because of equipment problems at its Lordsburg and Florida compressor stations in New Mexico, which cut the amount of gas that could flow west from the Permian.
Waha prices, however, have remained negative even after El Paso, a unit of Kinder Morgan Inc. (NYSE: KMI), returned the Florida compressor by March 31. El Paso expects to return the Lordsburg compressor on April 5.
The Permian is the biggest U.S. oil-producing shale basin and since much of that oil comes out of the ground with gas, it is also the nation’s second-biggest shale gas producing region, behind Appalachia in Pennsylvania, West Virginia and Ohio.
With production of both oil and gas more than doubling to record highs over the past five years, pipeline infrastructure in the Permian has not been able to keep up with rapid output growth.
That caused the basin’s existing oil and gas pipes to become constrained and forced some producers to burn or flare off some of the gas associated with oil production.
Those gas constraints have trapped gas in the Permian and depressed Waha prices, boosting the discount Waha trades at to the U.S. Henry Hub benchmark in Louisiana to a record high.
That spread reached $6.14/mmBtu for April 6, which topped the prior all-time high of $5.85 in February 1996, according to ICE and Refinitiv Eikon data.
That compares with an average discount of $1.06 in 2018 and a five-year (2014-2018) average of 34 cents.
Several new pipelines—such as Kinder Morgan’s Gulf Coast Express and Permian Highway—are in the works to move more gas out of the Permian, but drillers will have to wait until late 2019 and beyond for those projects to enter service.
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