Surging production and new takeaway capacity paved a path for record-high natural gas supplies flowing from the prolific Permian Basin.
A 550 MMcf/d expansion of Kinder Morgan Inc.’s (KMI) Permian Highway Pipeline (PHP) entered service at the start of this month and amplified Whistler Pipeline LLC’s recently completed 500 MMcf/d expansion in the Permian.
“Permian Basin gas samples reached an all-time high in November as new infrastructure lifted supply on several pipelines,” analyst James Taylor of East Daley Analytics said.
Receipts from interstate pipelines in the Permian averaged 6.3 Bcf/d in November, a 3.4% increase from October, according to pipeline samples tracked by East Daley. Volumes continue to hover near records this month. Flows are even stronger when accounting for intrastate activity, though timely data for in-state flows is not readily available because of different reporting requirements.
Additionally, the 2.5 MMcf/d greenfield Matterhorn Express Pipeline, under development by MPLX LP and WhiteWater Midstream LLC, is projected to come online in 2024.
Permian natural gas production reached a record in November at nearly 20.0 Bcf/d.
Gains on pipelines delivering to California and the Southwest region – notably PHP – “drove most” of the recent flow increases, Taylor said. Westbound flows on KMI’s El Paso Natural Gas system also reached a record high in November. Permian flows on El Paso averaged about 2.4 Bcf/d, up 10% versus the previous four-month average, he said.
The abundant supplies have helped to suppress prices at the onset of winter.
For example, Taylor added, “increased shipments are helping keep Southern California border prices in check as the heating season begins.”
NGI’s weekly cash price data show that SoCal Border Avg. slumped $1.110 on the week to $3.735/MMBtu for the Dec. 4-8 trading period. Waha prices also were under pressure, with the weekly average at the key West Texas hub down 81.5 cents to $1.045.
In contrast, NGI’s Weekly Spot Gas National Avg. gained 6.5 cents to $2.810, bolstered by advances in other regions.
The situation in California marks a dramatic shift from a year earlier, when supply constraints and a harsh winter on the West Coast sent SoCal Border Avg. prices atop $40. Thanks in part to increased storage capacity and to the stronger flows from the Permian, Pacific region natural gas inventories started December nearly 9% above the five-year average.
Associated Gas Strength
The majority of gas produced in the Permian is produced alongside oil. So-called associated gas produced from the top three oil plays in the Permian region – Wolfcamp, Spraberry and Bone Spring – has nearly tripled since 2018, from an annual average of 4.7 Bcf/d to 13.7 Bcf/d this year, according to Energy Information Administration (EIA) researchers.
They said such gas output ballooned because of both rising crude production amid steady global demand and an increasing gas-to-oil ratio among wells in the three leading plays.
The Permian region, covering swaths of western Texas and southeastern New Mexico, is the top crude-producing region in the United States, accounting for more than 40% of total U.S. oil output, according to EIA. It is the second-largest natural gas-producing region and accounts for about a quarter of total U.S. marketed natural gas production. The Marcellus Shale in the Appalachian Basin – spanning Ohio, Pennsylvania and West Virginia – is the largest source of natural gas from shale.
Bolstered by the Permian, total production reached record levels above 106 Bcf/d in November and again this month, according to Wood Mackenzie estimates. Output so far this month is more than 5 Bcf/d above year earlier levels.
This has kept overall supplies in storage elevated – 7% above the five-year average as of Dec. 1, according to EIA. In concert with mild fall weather, and now seasonally benign conditions to start December, futures prices also are weak as 2023 draws toward a close.
The January Henry Hub futures contract recently traded between $2.500 and $2.600, a fraction of the nearly $10.00 highs of 2022. It dropped below $2.300 in intraday trading Monday.
Rystad Energy analyst Lu Ming Pang said the lofty production and robust storage data are “keeping Henry Hub prices deflated.” Given “demand for heating remains tepid,” price bears have a grip on markets for now, Pang added.
