Permian Basin producers undeterred by negative natural gas prices: Enterprise

An extended stretch of negative natural gas prices at Waha is having no impact on Permian Basin producer activity, but it is leading to stronger ethane recovery and driving record NGLs volumes, Enterprise Products executives said April 30.

“Essentially, you’ve seen no effect from the weak natural gas prices” said Anthony Chovanec, executive vice president of fundamentals, during Enterprise’s first quarter earnings call. “What we’ve seen in natural gas prices is not going to cause people to shut in or even throttle back oil-related natural gas at this point. We haven’t seen it.”

Rig counts in the Permian are “steady as can be” since the start of the year, Chovanec said. There were 304 rigs in the basin as of April 17, from 310 at the beginning of the year, S&P Global Commodity Insights data showed.

Natural gas production in the Permian has eased in April. It averaged 18 Bcf/d over April 4-28, down from an average 18.4 Bcf/d in March and 18.6 Bcf/d in February, according to S&P Global data.

The drop in production could be explained by higher recovery of NGLs, whose prices have held up relative to gas. EIA reported record propane volumes in the Gulf Coast for the week ended April 17.

Weak prices at Waha are leading to “higher ethane recovery throughout the system,” said Michael Hanley, senior vice president of hydrocarbon marketing. “We’re seeing record transport volumes.”

Enterprise’s NGLs pipeline transport volumes rose to 4.15 million b/d, up around 5% from the first quarter of 2023. Natural gas transport volumes were 18.6 TBtu/d, up by 3% year over year.

The Permian Basin ethane frac spread soared to more than 30 cents/gal in the week to April 19 from under 20 cents/gal at the start of the month because of weak gas prices, S&P Global analysts wrote March 29. Frac spreads are expected to ease as natural gas prices recover, the analysts said.

Matterhorn relief
Spot prices at Waha have been mostly negative since March 12 as maintenance at El Paso Natural Gas and Gulf Coast Express pipelines have highlighted the need for more exit capacity out of the Permian.

The 2.5 Bcf/d Matterhorn pipeline “is planning to come on 3Q of this year,” said David Heppner, senior vice president of MPLX, during its first quarter earnings call April 30. MPLX has a 5% stake in the pipeline, which will transport gas from Waha to the Katy are near Houston and should ease takeaway capacity constraints out of the Permian until 2026.

The Permian is “desperately awaiting new eastbound takeaway later this summer,” S&P Global analysts wrote April 23. They expect Matterhorn’s effective capacity to “grow to its potential gradually through late 2024 and 2025,” as demand ramps up from two new LNG terminals in Texas, Golden Pass LNG and Corpus Christi LNG Stage III.

MPLX is interested in another greenfield pipelines out of the Basin, as well as expansions on Matterhorn or the Whistler pipeline. “There’s going to be more takeaway out of the basin,” CEO Michael Hennigan said. “We want to participate in that, whether it’s another residue pipe or not, and we’re trying to position ourselves to be part of that.”

Executives see LNG terminals as the main demand pull for new Permian gas. “There is incremental capacity needed clearly with barrels out of the Permian to the Gulf Coast.” Heppner said. The majority of LNG facilities are “backstopped by 20-year take or pays, which is a nice long-term pull.”
Source: Platts