The Permian Basin’s natural gas take-away bottleneck is taking its toll, with prices at the Waha hub in west Texas sinking last week to their lowest level in 27 years.
The price fell as low as US$0.25 per mmBtu (US$6.92 per 1,000 cubic metres) on November 27, Reuters reported, citing SNL data, which goes as far back as 1991. Some small amounts of fuel were even sold as low as negative US$0.25 per mmBtu. The Waha spot price has averaged US$2.16 per mmBtu (US$59.75 per 1,000 cubic metres) so far this year, US$2.71 per mmBtu (US$74.96 per 1,000 cubic metres) in 2017 and US$3.11 per mmBtu (US$86.02 per 1,000 cubic metres) for the last five years, the news service said.
Meanwhile, the spread with the Henry Hub benchmark in Louisiana rose to US$4.03 per mmBtu (US$111.47 per 1,000 cubic metres), the widest since 2005, Reuters added. It had been 60% of that in late September, which at the time was the largest since November 2008.
The Energy Information Administration (EIA) has forecast that the Permian’s gas output will be 12.4 bcf (351.17 mcm) per day this month, out of an estimated 75.1 bcf (2.13 bcm) per day nationally and second only to the Marcellus. Gas is largely a by-product of oil production in the Permian, which is expanding steadily.
In fact, more gas has been produced since the expansion of Plains All American Pipeline’s Sunrise oil pipeline from the Permian to Cushing, Oklahoma, came online in November, RBN Energy analysts said in a note. If more oil can flow, more oil and gas wells are drilled.
The low prices were “very likely driven, in our view by continued associated gas production growth poured into a region that won’t see new greenfield pipeline capacity for at least 10 months,” said RBN, adding: “We are about to enter a period of complete exhaustion of Permian gas take-away.” The lack of take-away capacity is not expected to ease until mid-2019 or later.
US gas exports to Mexico are rising as domestic Mexican production declines. New data from the EIA show that for August, pipeline exports to Mexico grew 13% from year-ago levels as a result of several new pipeline projects that have entered service. US pipeline exports to Mexico were 5.1 bcf (144.43 mcm) per day in August compared with 4.5 bcf (127.44 mcm) per day in August 2017.
They comprised an average of 60% of Mexico’s gas supplies from January to August, compared with 58% for all of 2017. Several major new export pipelines have been completed in the last few years.