In April, negative natural gas prices at the Waha hub posed significant challenges for Permian Basin producers, amid expectations of new pipeline operations.
Natural gas prices at the Waha hub in the Permian Basin plummeted to a negative $2.00 per million British thermal units (MMBtu) in April, indicating a surplus of supply over demand. Despite the negative gas prices at the Waha hub in West Texas, major pipeline operators have not observed any significant changes in activity within the oil rig basins.
Producers in the Permian Basin continue to extract oil without increasing or decreasing production rates, maintaining a steady output in light of West Texas Intermediate (WTI) crude prices remaining strong at over $80 per barrel. The negative price trend in natural gas at the Waha hub, persisting since early March, has been exacerbated by a recent increase in oil prices, which led to more wells being brought online, further contributing to the gas surplus.
"The price at the Waha Hub rose by $1.25 in the latest reporting week, from -$1.18/MMBtu to $0.07/MMBtu on April 24," according to data from the U.S. Energy Information Administration (EIA). This brief uptick marked only the second day that prices have risen above zero since the start of the month.
The negative gas prices have presented dilemmas for Permian producers on how to manage the excess natural gas output. While some maintenance has limited takeaway capacity, new pipelines are expected to begin operations in the near future, potentially alleviating the glut as demand for liquefied natural gas (LNG) exports from the U.S. Gulf Coast is anticipated to grow.
"Essentially, you've seen no effect from the weak natural gas prices," said Anthony Chovanec, Vice President of Fundamentals and Supply Appraisal at Enterprise Products, during the company's earnings call. Chovanec emphasized that the economics driving Permian producers are predominantly oil-focused, with natural gas prices not exerting enough pressure to cause a reduction in oil-related natural gas production.
Midstream companies such as MPLX are preparing for the additional takeaway capacity from the Permian. MPLX CEO Michael Hennigan expressed confidence on the earnings call, stating, "There's going to be more takeaway out of the basin." David Heppner, MPLX's senior vice president, also underscored the importance of LNG exports from the Gulf Coast as a long-term stable outlet for natural gas produced in the Permian.
Amidst these market dynamics, oil and gas producers in Texas have increased the number of requests to the Railroad Commission of Texas (RRC) to permit flaring, a practice used to burn off excess natural gas. The RRC approved 21 such exemption requests last week, as reported by Reuters.
