WSJ - Growing Gas Glut Threatens West Texas Oil Boom

November 20, 2017 – Wall Street Journal

Growing Gas Glut Threatens West Texas Oil Boom

Energy producers are running out of places to send all of their gas, possibly forcing them to cap wells, curtail drilling or set the gas aflame

By: Ryan Dezember and Alison Sider

Natural gas is gushing out of West Texas, a byproduct of frenzied drilling for oil. That is a problem for energy producers, who are running out of places to send it all.

Pipelines running from the region’s Permian Basin to the Gulf Coast’s chemical plants, cities and export terminals are essentially full. Drillers in the Rockies and Canada already supply markets in the north and west.

There is plenty of room on pipelines running south to Mexico, which has emerged as a major market for U.S. producers, but there is a catch: much of the gas distribution infrastructure and power plants there that would buy the fuel haven’t been built yet.

The growing gas glut is already weighing on regional prices. Natural gas prices at the WaHa trading hub in West Texas have fallen to much as 57 cents per million British thermal units—or about 20%—below spot prices at Louisiana’s Henry Hub, the national benchmark, according to S&P Global Platts. Analysts forecast the gap exceeding $1 next year, or about a third of the $3 that U.S. natural gas futures have hovered around this year.

That is good news to regional gas consumers, such as power producers, who can profit from the lower price. Electricity provider Vistra Energy Corp. said it paid $350 million in August for a power plant in Odessa, Texas, to take advantage of the cheap fuel.

But for oil and gas producers, the excess supply could potentially force them to take drastic measures—such as capping wells and curtailing oil drilling—until new pipelines to the Gulf Coast are built and planned power plants come online in Mexico.

“We’re headed into a situation that’s never happened before,” said Rusty Braziel, a former trader who heads consultant RBN Energy LLC. “They’re making money on crude. They need to make sure the lack of gas takeaway capacity doesn’t affect their crude production.”

Read the full article here: https://www.wsj.com/articles/why-a-growing-gas-glut-could-imperil-the-west-texas-oil-boom-1510870178