This is nuts! This is insane! Because of overproduction, lack of pipelines, and an existing pipeline down for maintenance, natural gas sellers at the Waha natural gas trading hub (in West Texas) are actually paying buyers to take the gas off their hands–up to an amazing $5 per thousand cubic feet!!!!
How can producers stay in business by paying customers to take what they produce? Because the producers in this case are oil drillers. They can’t burn off (flare) the natural gas that comes out of the hole along with the oil they produce. Instead, they have to sell it or get rid of it another way. Normally they would sell the excess “associated” gas to buyers. But we have a region in which there are not enough buyers who want the gas. So the sellers (producers) are giving it away–have been for months. And if you can’t give it away? You start *paying* other people to take it! All so you can continue to pump oil out of the ground.
Oil drillers in the Permian basin are in a tough spot and will remain so until new pipelines (planned or under construction) get built.
We’ve written about the Waha before, last November when the price briefly went to zero (see Permian Gas at Waha Hub Briefly Trades at $0, Implications for M-U), and a few weeks ago in March, when the average price fell to almost zero for an extended period of time (see Permian NatGas Price Falls to $0.12/Mcf Following Equipment Failure).
The price has continued to plummet over the past few weeks. It briefly hit minus $5/Mcf, and is now *averaging* minus $3.38/Mcf! Again, this is nuts!
Waha cash natural gas prices plummeted as low as negative $5/MMBtu Tuesday on the back of a combination of strong local production, limited takeaway capacity and maintenance on the El Paso Natural Gas system.
Currently, the Waha index is averaging minus $3.38/MMBtu, which is an all-time low. Previously, Waha’s lowest settle was minus $1.95/MMBtu, which came on March 28.
Meanwhile, El Paso Keystone has averaged $3.61/MMBtu so far on Tuesday, wandering between minus $1.45/MMBtu and minus $5/MMBtu.Permian Basin production is down about 500 MMcf/d from all-time highs posted last week, according to data from S&P Global Platts Analytics. But Permian output averaged 9.1 Bcf/d during the last week of March, compared with a three-year average of 5.9 Bcf/d during the same time period, hitting a high of 9.4 Bcf on March 26. Permian production is expected to total 8.2 Bcf on Tuesday, according to Platts Analytics.
There is still a force majeure declaration in place on the El Paso system. The declaration, the result of unplanned maintenance, has lasted for two weeks so far.
Work at the Florida compressor station wrapped up Saturday and a force majeure declaration there was lifted.
The force majeure declaration at Lordsburg Station is expected to be lifted April 5.
Another reason for this historic weakness in prices is the softer demand expectations for the shoulder season. Total Southwest demand averaged about 7 Bcf/d over the past two days after averaging 8.4 Bcf/d in March.*
It’s hard for our gas to compete against gas being given away. Fortunately we don’t currently compete with that gas. Still, it shows what can happen without enough infrastructure.
*S&P Global Platts (Apr 2, 2019) – Waha cash natural gas trades as low as negative $5/MMBtu
This post appeared first on Marcellus Drilling News.