Money For Nothing, Gas For Free - Negative Permian Prices a Positive for Some

It’s said that everything is bigger and better in Texas, and when it comes to the magnitude of negative natural gas prices, the Lone Star State recently captured the crown by a wide margin. By now, you’ve probably heard that Permian spot gas prices plumbed new depths in the past couple of weeks, falling as low as $9/MMBtu below zero in intraday trading and easily setting the record for the “biggest” negative absolute price ever recorded in U.S. gas markets. Certainly, that was bad news for many of the Permian producers selling gas into the day-ahead market. But every market has its losers and winners, and negative prices were likely “better” — dare we say much better — for those buying gas in the Permian. Today, we look at some of the players that are benefitting from negative Permian natural gas prices.

The Permian gas market has been keeping us busy lately, with wild prices swings that can’t go by without some explanation. As we’ve detailed in previous blogs on the topic, those swings have been driven by limited takeaway pipeline capacity that will continue to impact the Permian gas market until Kinder Morgan’s Gulf Coast Express Pipeline starts up later this year. Two weeks ago, in Don’t Dream It’s Over, we discussed the most recent price plunge at the region’s Waha Hub. In that blog, we detailed how pipeline maintenance and steady gas production growth further congested an already constrained market and pushed prices into negative territory for the third time in the past five months. We first saw Waha prices fall below zero during intraday trading in November 2018 (dashed purple circle in Figure 1; see Keep Breathin’ for more on that event), and subzero pricing returned in February (dashed orange circle; see King of Pain). But as we had expected, those first two negative-price events were just the beginning and, as it turns out, only blips by current standards.

The most recent negative-price event in late-March/early-April (dashed red circle) marked the first time that daily trades set not only an intraday low in negative territory (going as low as minus-$9/MMBtu on April 3) but also averaged below zero — and not just for one day but for multiple trading days, including for 10 days straight from March 25 to April 5. Even the intraday high on some of those days was in negative territory. While day-ahead spot prices last week improved dramatically — the daily average returning to positive on many days — they’re still on track to average below zero this month, and the forward price for May is also negative, indicating the oversupply situation continues to weigh heavily on the Permian gas market.

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