Negative Prices

A lot of people know that Permian natural gas prices have spent many days in negative territory over the last few years, only to skyrocket over $100/MMBtu during the Deep Freeze in February. Those events were mostly viewed as transitory, driven by a chronic lack of pipeline capacity in the former case and a crazy round of arctic weather in the latter. It may come as a surprise to hear that forward basis prices for natural gas in the Permian are trading at a premium to Henry Hub for at least some months over the next year or so. How could it be that gas from a supply basin way out in West Texas, where gas is considered a byproduct, trades at a premium? The answer lies in the key infrastructure changes expected in the weeks ahead and a premium in forward basis for the Houston Ship Channel gas market. How long the Texas premiums will last depends on Permian gas production, which is starting to take off again. Today, we aim to explain the latest developments in Permian and Texas natural gas markets.

Permian natural gas markets have never been more interesting, if you ask us. Sure, there are no negative prices at the Waha hub these days, and the triple-digit prices produced by Winter Storm Uri are starting to fade in the rear view. But there’s plenty of action ahead for Permian gas this year and next. For starters, sometime in the next few weeks the 2.0-Bcf/d Whistler Pipeline is scheduled to begin moving natural gas from the Permian to South Texas, further enhancing takeaway options for the basin’s continually growing supply of gas. That’s good news, considering Permian gas production is at record highs and set to grow to over 14 Bcf/d by the end of 2022. Speaking of records, gas exports from the Waha Hub to Mexico have never been higher and should increase further this summer, as power demand increases and a new pipeline across the border is expected to come online. Topping all that off is the recent news that the Permian will soon see a major gas storage facility start up right in the middle of the Waha hub. The latter is the focus of today’s blog, in which we detail the latest addition to the Permian gas infrastructure puzzle.

If you are looking for a way to focus on 2021 without reflecting on the last 12 months, we might have a deal for you. That’s because Permian natural gas and oil production is starting off this year at levels very close to where they finished 2019. That’s right: as far as the Permian is concerned, you can almost skip entirely over 2020 and pick up right where we left off the prior year. Well, for the most part. Oil prices are lower, rig counts have been reduced, and industry consolidation has removed some of the familiar Permian names from the stock ticker. In general, the atmosphere out in West Texas has calmed down dramatically from the headiest days of Permian growth and it’s safe to say it’s easier to grab lunch in Midland these days. Does that mean things in the basin aren’t still interesting out there? If you ask us, the answer is a resounding “No!” For starters, growth is back in the basin, even if it is at a slower pace than in 2019, and natural gas prices are stronger, with negative-price trades a thing of the past thanks to new pipelines. Even crude prices are better than some might think, with Permian barrels pricing over Cushing for many months now. The Permian in 2021 is certainly a half-empty or half-full type of market. We go for the latter in today’s blog, in which we outline our view of production growth in West Texas this year.

If you are looking for a way to focus on 2021 without reflecting on the last 12 months, we might have a deal for you. That’s because Permian natural gas and oil production is starting off this year at levels very close to where they finished 2019. That’s right: as far as the Permian is concerned, you can almost skip entirely over 2020 and pick up right where we left off the prior year. Well, for the most part. Oil prices are lower, rig counts have been reduced, and industry consolidation has removed some of the familiar Permian names from the stock ticker. In general, the atmosphere out in West Texas has calmed down dramatically from the headiest days of Permian growth and it’s safe to say it’s easier to grab lunch in Midland these days. Does that mean things in the basin aren’t still interesting out there? If you ask us, the answer is a resounding “No!” For starters, growth is back in the basin, even if it is at a slower pace than in 2019, and natural gas prices are stronger, with negative-price trades a thing of the past thanks to new pipelines. Even crude prices are better than some might think, with Permian barrels pricing over Cushing for many months now. The Permian in 2021 is certainly a half-empty or half-full type of market. We go for the latter in today’s blog, in which we outline our view of production growth in West Texas this year.

It’s only August, but the folks involved in Permian markets must feel like they’ve already packed in a full year’s worth of action. The events are well known by now, but they’re still remarkable. A crash in refining utilization, followed by massive field shut-ins, all precipitated by a novel virus and exacerbated by some unusual moves by global oil producers. The year’s not over, and the coronavirus hasn’t gone away like a miracle, but a calm has emerged in oil prices that has helped producers get their sea legs. While $40/bbl West Texas Intermediate (WTI) is a far cry from where we started 2020, it’s been just enough to get most of the shut-in crude production back online in West Texas. Today, we provide an update on the status of curtailments in the Permian Basin.

Crude oil supply news comes in from all angles these days, bombarding the market daily with fresh information on producers’ efforts to ramp their volumes back up now that the global economic recovery is cautiously under way. Crude demand is rising, storage hasn’t burst at the seams yet, and prices have come a long, long way in just a few weeks. Permian exploration and production companies, having avoided a fleeting, longshot chance that the state of Texas might regulate West Texas oil production, are responding to higher crude oil prices as free-market participants should. The taps are quickly being turned back on, unleashing pent-up crude and associated gas volumes that, you could say, were under a sort of quarantine of their own for a while. Today, we provide an update on the status of curtailments in the Permian Basin.

Crude oil markets have been anything but dull lately. After imploding to unimaginable, negative values last month, prices have been on a tear since and are now sitting in the low $30s/bbl range. That’s not great for producers, but kind of like social distancing flattens the curve, the current price level should keep production volumes in check and stave off the worst of the potential financial distress for most Permian producers, for now. So, what has been driving the price rise? Similar to the pauses in economic and social activity that many cities have taken lately, many Permian producers have recently decided to take a wait-and-see approach on crude prices and throttle back output. Today, we provide an update on the always-dynamic Permian Basin crude oil market and how producer curtailments have materialized in May.

Well, it’s happened. The first signs of crude oil and gas production curtailments in the Permian Basin materialized over the weekend. That has followed weeks of extreme oversupply conditions, growing storage constraints and distressed pricing, all to deal with the abrupt and unprecedented loss of refinery demand for crude oil due to COVID, not just along the Gulf Coast, where the lion’s share of the U.S. refineries sit, but also more locally in West Texas. The rapidly shifting supply-demand balance, first from reduced local refining demand and now also the emerging production cuts, is adding volatility to the spreads and flows between the West Texas basin’s regional hub at Midland, and downstream hubs at Cushing and Houston. Today, we look at how the Midland market has responded to the downturn in local refining demand, and how production losses will factor into the balancing act.

Underlying Monday’s financially driven oil price rout are physical markets that are in extreme turmoil as they contend with severely reduced demand resulting from the COVID lockdowns and rapidly filling storage tanks. In the Permian Basin, the epicenter of U.S. shale oil, the crude benchmark price — WTI at Midland — on Monday crashed to a historical low of negative $13.13/bbl before rebounding to a positive $13.01/bbl Tuesday. The same day, prices at the Permian natural gas benchmark Waha revisited negative territory for the third time this month, with a settle of minus $4.74/MMBtu for Tuesday’s gas day. Negative supply prices aren’t new to Permian producers, at least for gas — Waha settled as low as minus-$5.75/MMBtu in early April 2019. But up until a couple months ago, oil prices were supportive enough to keep producers drilling regardless. Now, that’s all over, at least for a while. What can we expect now that negative oil prices have arrived in the Permian? Today, we’ll dissect the latest bizarre pricing event to rattle the Permian natural gas and oil markets.

Several new propane dehydrogenation (PDH) plants are coming online along the U.S. Gulf Coast. Now developers in Alberta are making plans for the province to become the next hot spot for PDH plant development. Final Investment Decisions (FIDs) are due over the next year or so on two projects aimed at taking advantage of the increasing volumes of propane being produced in western Canada—propane so plentiful, in fact, that they are paying to have it hauled off.  But what if propane prices rise due to increasing U.S. demand, more exports and lower U.S. production?  What might such developments do to PDH economics?   What could make Alberta different? Today, we consider the drivers behind two (maybe three) prospective PDH projects in Alberta, and look at how they may affect the propane market on both sides of the 49th parallel.