West Texas natural gas cash prices remain mired in negative territory amid weak weather-driven demand and a massive supply overhang.
Waha cash prices on Monday ticked up a half-cent but still averaged negative 69.5 cents/MMBtu, according to NGI data. The West Texas benchmark has mostly hovered in the red since early March. El Paso Permian physical prices averaged negative 68.5 cents on Monday, down 8.5 cents on the day.
A combination of various maintenance events on key pipelines that interrupted takeaway capacity, modest demand for gas because of anemic heating demand, and record levels of associated gas production in the Permian Basin of West Texas have left excess supply stranded in the region. Suppliers have paid to send away gas, resulting in negative prices.
Associated gas is produced alongside oil. U.S. crude producers bolstered output to record levels late last year and early in 2024, and associated gas followed suit. Permian gas production – the majority of which is associated gas – hit new highs around 20 Bcf/d during the winter, helping to drive overall natural gas production to records during the season as well. Total gas production hit a fresh high above 107 Bcf/d in early February, according to Wood Mackenzie.
“The Permian activity is amazing,” Jacob Thompson, managing director at Samco Capital Markets, told NGI.
Key Infrastructure
Last year, natural gas takeaway capacity from the prolific Permian increased by 550 MMcf/d with the in-service of an expansion of Kinder Morgan's Permian Highway Pipeline (PHP). The expansion spans from Waha to Katy, TX.
That followed work by MPLX LP and Whitewater Midstream to complete the brownfield 500 MMcf/d expansion of the Whistler Pipeline last fall. The 2.5 MMcf/d greenfield Matterhorn Express Pipeline, also being developed by MPLX and Whitewater, is due online later this year.
But PHP and other pipelines have reported limited capacity at points this month amid repair and upgrade work.
Maintenance projects in the region have several times in recent months significantly curtailed capacity. With limited options to reroute gas to other conduits, supply gluts developed and prices tanked.
In the past, when PHP flows were scaled back, needed supplies did not get to the Southwest and Southern California. These regions rely on Permian gas. When that supply was held up, prices had spiked. But this time around, because of benign weather and soft heating demand, prices in the West are also subdued.
Prices at SoCal Citygate, for example, averaged $1.560 on Monday, up 9.5 cents on the day but still trading at less than half of its value at the start of this year.
In fact, even after accounting for a brief but far-reaching bout of Arctic air in January, AccuWeather said the past winter was likely to go down as the mildest on record nationally and among the warmest in the South Central region and parts of the West. As such, even with more capacity to send out gas – maintenance aside – light demand over the past couple months injected another bearish challenge.
Diminished demand from the Freeport LNG export facility in Texas further compounded matters. It recently brought back online its Train 3 after months of repairs, but it then took offline Trains 1 and 2 at the liquefied natural gas terminal for more inspections this month.
Stout Storage
Supplies in storage swelled as a result of the bearish factors. South Central inventories as of March 15 were 42% above the five-year average. Utilities in the region injected 21 Bcf of gas into storage for the latest period, according to the U.S. Energy Information Administration.
The natural gas market “continues to face storage congestion risks this year,” said Goldman Sachs Group analyst Samantha Dart.
On the production front, she noted, leading exploration and production (E&P) firms have scaled back since early February. Lower 48 output has over the past 30 days held below 102 Bcf/d on average. But Permian production is holding strong, owing to its ties to oil and ongoing strength on that front.
That means even more takeaway capacity may be needed to support West Texas prices, said RBN Energy LLC analyst Housley Carr.
“The Permian is second only to the Marcellus/Utica in natural gas production, but extremely different factors are at play in those two regions. Appalachian output is gas-driven — that’s why leading E&Ps there (Chesapeake Energy Corp. and EQT Corp.) recently announced big production cuts in response to painfully low gas prices,” Carr said.
The Appalachia Regional Avg. clocked in at $1.415 on Monday, down from the $2.00 level at the beginning of 2024 but far above West Texas levels, according to NGI’s cash price data.
In “sharp contrast” to Appalachia, Carr said, the Permian “is laser-focused on oil, and that crude emerges from West Texas and Southeast New Mexico wells with vast amounts of associated gas that needs to be separated into…pipeline-quality natural gas then piped to market, either to gas consumers within the Permian itself, to other domestic markets (including LNG export terminals along the Gulf Coast), or to Mexico.”
