Natural gas prices enter extreme negative territory in the Permian
The Permian natural gas spot price continues to enter new frontiers in 2019. The pipeline constraints that sparked extreme negative Permian daily prices first appeared in late March and early April.
As new crude takeaway pipelines started up, oil and associated gas production levels grew concurrently. The timing couldn’t be more inconvenient for producers experiencing negative natural gas prices, which were already up against low seasonal demand and pipeline outages.
Gas production outlook
Ramped up development plans from majors like Exxon and Chevron support continued strong natural gas production growth in the Permian.
That growth is underpinned by rising Mexican export demand – but the infrastructure needed to move supplies is falling behind schedule, worsening natural gas price problems in the Permian basin.
Gas export infrastructure at capacity
Recent gas pipeline flow metrics show current effective Permian gas export infrastructure is at capacity. The result – extreme negative daily pricing – trickled down to producers’ bottom lines. Distressed production from Apache and Chevron have led to temporary economic shut-ins. The shut-ins could last until October 2019, when the Gulf Coast Express pipeline is planned to begin operations.
Start up of the Gulf Coast Express, as well as the Permian Highway Project and Whistler pipelines, will alleviate tight export constraints in coming years. But more takeaway capacity will be needed thereafter by 2025 to avoid hitting a wall once again.
Henry Hub and other key outlooks
Gulf Coast price discounts against the Henry Hub futures benchmark will widen in the near-term as new pipelines ship larger volumes of Permian gas to trade hubs in Agua Dulce and Katy. Meanwhile, the new pipelines will support Waha basis against Henry Hub in the medium-term. After those pipelines fill up with new production, the basis is expected to again soften against Henry Hub.
Source: Wood Mackenzie