Natural gas prices in the Permian Basin of West Texas are plunging toward zero as booming production overwhelms pipeline networks, creating a regional glut of this fuel.
Gas in an area of the vast Permian known as Waha traded for as little as 20 cents to 70 cents per million British thermal units on Monday, traders said. That compares with the US benchmark futures contract that’s trading around $5.20 and European prices close to $28. [bold, links added]
If West Texas prices tumble into negative territory, energy producers will effectively be paying someone to take gas off their hands — something that hasn’t happened in two years.
The price collapse illustrates the sharp contrast between bountiful US supplies of fuel and Europe’s worsening energy crisis as winter approaches.
Tight gas markets in Europe and Asia threaten to have knock-on effects for diesel, coal, and power as governments and utilities scramble for energy, according to Bloomberg Intelligence.
The Texas price plunge stems from maintenance scheduled for Kinder Morgan Inc.’s Gulf Coast Express and El Paso Natural Gas pipeline systems.
Insufficient pipeline capacity has actually been a long-term problem that has dogged Permian Basin gas producers for years.
The choke points worsen when pipeline operators must perform repairs and preventative maintenance work that forces temporary reductions in pressure or halts shipping.
Permian pipeline constraints “have never been relieved,” making the region more susceptible to sudden gluts and price volatility, said Campbell Faulkner, chief data analyst at OTC Global Holdings LP.
There also are climate implications because much of the gas pumped in the Permian Basin is a byproduct of crude extraction.
When pipelines are too full to handle any more gas, companies typically burn off the excess gas so they won’t have to reduce or stop oil production.
The practice, known as flaring, has attracted increasing ire from environmental groups and scrutiny from regulators.
Gas delivered into the Waha hub crumbled by 85% to settle at 41 cents on Monday. Prices in the region went negative eight times in 2020 and more than two dozen times in 2019, data compiled by Bloomberg shows.
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