If it’s not one thing, it’s another in the Permian natural gas market. Just as it appeared that prices in the West Texas basin were finally turning a corner and strengthening with the full start-up of Kinder Morgan’s Gulf Coast Express Pipeline (GCX) late last month, various issues have again conspired to send daily Permian cash prices back down to near zero yet again. And it’s not just the daily spot markets that have come under pressure; forward prices were also severely discounted a few days ago when Kinder Morgan announced that the in-service date of its next long-haul pipeline from the region — the Permian Highway Pipeline project — would be delayed from late 2020 to early 2021. Keeping track of the roller-coaster ride of Permian gas prices and the drivers behind the highs and lows continues to keep heads spinning. Today, we explain the latest wild moves in the Permian natural gas market.
To start things off, let’s consider the recent price volatility at the Permian Basin’s primary natural gas market trading location, the Waha Hub, based on the daily spot price index published by our good buddies over at Natural Gas Intelligence (NGI). After prices plunged to almost $6.00/MMBtu below zero in early spring (Figure 1, shaded red circle; see Don’t Dream It’s Over for more on negative prices from earlier this year), some factors such as production shut-ins and power demand helped stabilize the price at Waha to between zero and around $1.00/MMBtu through the rest of spring and summer (shaded gray rectangle). But nothing did more to strengthen Waha prices than the start of Kinder Morgan’s GCX, which began partial service in mid-August and entered full commercial service on September 25. A few weeks of strong prices followed (shaded green circle) and, as we said in Pinch Me, we expected the available takeaway capacity on GCX to hold Permian prices in positive territory (i.e., above zero), at least until “the holidays.” Turns out that holiday in question may have been Columbus Day, as things in the daily gas markets have certainly taken a turn for the worse as Halloween (another holiday of sorts) approaches (purple arrow). One thing is sure: Christmas hasn’t come early for Permian natural gas marketers (last quip, we promise). While Waha gas prices still remain well above the lows set earlier this year, they are again treading just barely above zero.
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