Spot natural gas prices in the Permian basin of west Texas and southeast New Mexico fell into negative territory at the start of this week, driven down by mild weather and pipeline constraints.
The Waha index — a main indicator for the value of Permian gas supplies — fell to -37¢/mmBtu on 8 May, down from 97¢/mmBtu on 5 May. The index last went negative on 13 January, falling to -$3.025/mmBtu. The El Paso and Transwestern Permian basin indexes respectively fell to -30¢/mmBtu and -45¢/mmBtu on 8 May. Both of those indexes were above $1/mmBtu at the end of last week.
Weather-related demand for gas-fired power should be lower this week in Texas, though a decrease in takeaway capacity is the larger factor pushing down spot prices. Midpoint inspections on Kinder Morgan's 2.1 Bcf/d (59mn m³/d) Permian Highway pipeline (PHP) began this week, cutting flows from the Permian basin towards the US Gulf Coast. PHP capacity was reduced by 47pc to 1.1 Bcf/d today, where it will remain through tomorrow. Available capacity will then rise to 1.6 Bcf/d, before returning to 2.1 Bcf/d on 13 May.
Increased takeaway capacity for gas remains an ongoing issue in the Permian as associated gas volumes rise with crude production. Permian dry-gas output rose to 16.9 Bcf/d in March, an increase of 0.8pc from February and an 18pc increase from March 2022, according to the US Energy Information Administration. Crude output in the Permian basin should stop rising by 2027 before peaking at approximately 7.7mn b/d by the end of the decade, according to consultancy Rystad Energy. Continued growth in production has been the largest pressure pushing down Waha prices, Kinder Morgan executives said during the company's earnings call in April. A new pipeline would need to enter service in the Permian basin between 2026-2027 to keep up with demand for takeaway capacity, the company said.
Expansions on existing pipeline infrastructure are underway in the meantime. Kinder Morgan plans to expand capacity on the PHP by 550mn cf/d, and expand capacity on the 2.1 Bcf/d Gulf Coast Express pipeline by 570mn cf/d, by November and December, respectively. Marathon Petroleum's midstream business MPLX is working to expand the 2 Bcf/d Whistler pipeline, increasing its capacity by 500mn cf/d before September.
