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Surging LNG export demand, lower Permian production lift South Texas cash basis

Basis prices at South Texas natural gas hubs are at significant premiums to year-ago levels this month as strong exports and lower production tighten the supply-demand balance in the Lone Star State.

At key trading locations across the region, including Houston Ship Channel, Texas Eastern STX and Tennessee Zone 0, basis prices are up 11 cents, 12 cents and 16 cents/MMBtu, respectively, month to date this December compared to 2019, S&P Global Platts data shows.
While prices across most of Texas continue to trade at a discount to the Henry Hub, cash-market averages have recently moved closer to price parity with the benchmark index. At Houston Ship Channel and Tennessee Zone 0, basis prices are at a 1 to 2 cent discount this month. At Texas Eastern STX, the December cash-market average has actually traded at modest, 1 cent premium to Henry Hub this month.

Over the past year, Texas’ supply-demand balance has tightened significantly, lifting regional basis prices, due in part to stronger export demand.


Over the past 12 months, the addition of a third liquefaction train at both Freeport LNG and Cheniere Energy’s Corpus Christi terminal, has given Texas’ export capacity a boost. From November 1 to date, feedgas demand in the state has averaged over 3.5 Bcf/d. Over the same period in 2019, demand from the two terminals averaged just 1.9 Bcf/d, data from S&P Global Platts Analytics shows.

While the year-on-year increase in pipeline exports to Mexico has been comparatively smaller, rising demand south of the border has also contributed to the tighter supply balance in Texas. Since the start of November, the state has delivered an averaged 4.8 Bcf/d to Mexico – about 220 MMcf/d more than was delivered over the same six-week period in 2019.


Lower gas production in the Texas, particularly in the Permian Basin, has also been a major contributor to the state’s tighter market balance this year.

Following a historic collapse in the oil markets in the first quarter, shale producers in West Texas made major cuts to capital spending and slashed drilling activity. By late August, the number of drilling rigs in the Permian Basin bottomed out at just 127 – down by over 70% from its annual high in March, data published by Enverus DrillingInfo shows.

The impact on Permian production, and Texas supply more broadly, has been significant. In December, gas production from the West Texas basin has averaged just 10.2 Bcf/d. According to Platts Analytics, that figure has fallen nearly 2.5 Bcf/d, or almost 20%, compared to its record-high average in March.

Market Outlook

Heading into 2021, the Texas gas market is pricing in modestly weaker forward basis at Houston Ship Channel and Texas Eastern STX. Through the third quarter, forward basis curves at the two hubs are valued at discounts to Henry Hub of 3 cents and 2 cents/MMBtu, respectively. In the fourth quarter, Houston Ship Channel and Texas Eastern STX are priced at steeper discounts of 7 to 8 cents.

At Tennessee Zone 0, the market is pricing in a significantly steeper discount for 2021. Through the third quarter, the location is currently priced at an average 8 cents below Henry Hub. For Q4, that discount widens to 17 cents below the benchmark, S&P Global Platts’ most recently published M2MS data shows.
Source: Platts

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