S&P Global - Permian gas price crash highlights tight market, demand for new pipeline

March 29, 2019 – S&P Global

Permian gas price crash highlights tight market, demand for new pipeline

By Bill Holland, Ashleigh Cotting, Stephanie Tsao

Natural gas prices in the Permian Basin have gone negative, and the pain for producers may continue into autumn or beyond as shale oil production booms and pipes carrying gas out of the basin remain full.

Producers focused on shale oil have proved willing to pay buyers to take the gas off their hands because the gas must be stripped out of higher-priced crude before the oil can be sold. Burning gas off at the wellhead — flaring — is one way producers can dispose of unsellable gas, but it is only a temporary solution since it makes landowners and state regulators uneasy as they watch royalties go up in flames.…

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…A March 18 outage at two compressor stations on El Paso Natural Gas Co. LLC's pipeline west out of the basin clipped roughly 200,000 Mcf/d of capacity off the basin's estimated 8.7 Bcf/d total.

That disruption was enough to unbalance the already precarious market and push prices into negative territory. The price drop-off gained momentum, going from a few pennies on the minus side to as much as minus-79 cents/MMBtu at Waha on March 27, according to S&P Global Market's Intelligence Platts' Gas Daily. Spot prices at four of eight pricing points in the Permian were in negative territory March 27, Gas Daily said.

"This upheaval feels different," the natural gas market consultants at RBN Energy said March 28. RBN predicted last year that the Permian gas market would crack up with the potential to go to "negative infinity."

"The price crash has reached a new level of drama, with day-ahead spot prices at West Texas' Waha hub now settling below zero — some days by more than $0.50/MMBtu," RBN said.