Waha spot gas prices negative for a second day

Natural gas prices at the Waha hub in west Texas were negative for a second consecutive day today, as milder weather, higher production and pipeline maintenance squeezed gas flows from the Permian basin.

The Waha index — a main indicator of the value of gas supplies in the Permian — remained at -57¢/mmBtu for a second day, down from 54¢/mmBtu on 24 October and well below the 30-day high of $5.03/mmBtu on 18 October.

The index last turned negative on 23 October 2020, at -92¢/mmBtu, at a time when pipeline takeaway capacity from the region was still struggling to catch up with growing oil and gas production.

The majority of Permian gas production is in the form of associated gas, meaning gas volumes rise and fall with crude production. Crude production from the prolific basin has hit record highs this year, topping 5.4mn b/d in October, according to the Energy Information Administration (EIA), while gas production is estimated at 20.9mn cf/d.

Gas flows from the Permian have been under pressure since August 2021, when El Paso Natural Gas' line 2000 ruptured in Arizona, limiting gas flows from the Permian to the southwest for more than a year. The line 2000 work led Kinder Morgan to shut in that portion of its systemall the way back to the Permian, tightening operational boundaries and pushing flows on other westbound pipelines closer to their maximum capacities.

But planned repairs on Kinder Morgan's 2.1 Bcf/d (59mn m³) Gulf Coast Express (GCX) pipeline that started this week appear to have been the tipping point for the negative prices. Flows on GCX were cut by 38pc to 1.3 Bcf/d (37mn m³/d) yesterday and today, and will be reduced to 1.1 Bcf/d tomorrow through 28 October.

Supplies from the Permian also lost an outlet this year following the shutdown of the 2 Bcf/d (57mn m³/d) Freeport LNG export facility south of Houston, Texas, in June because of an accident, leaving more Permian gas available to US markets. Much of that supply was absorbed as hotter-than-normal weather stoked demand from the power sector, but that dwindled as temperatures fell closer to seasonal norms in recent weeks. Freeport expects the terminal to have a partial restart of mid-November.

The constraints have forced Permian producers to sell gas at wider discounts to the US benchmark, the Henry Hub. Prices at the Waha hub averaged a $3.06/mmBtu discount to Henry at the start of this month, narrowing to an 88¢/mmBtu discount on 18 October. Waha was at a $4.27/mmBtu discount to Henry on 24 October before the former turned negative, forcing sellers to pay buyers to move the gas.

Winter prices for the Waha hub have fallen, but remain in positive territory. The Waha price was $3.16/mmBtu for November and $4.56/mmBtu for December as of yesterday, according to Argus forward curves data. Those were down by 18pc and 12pc respectively from the start of this month.

By David Haydon