Commodities

Texas Natural Gas Drops Toward Zero as Output Swamps Pipelines By Bloomberg



(Bloomberg). Natural gas prices are plummeting in West Texas’ Permian Basin as booming production overwhelms pipelines, creating a regional glut.

According to traders, gas in the Waha area of Permian’s vast Permian was traded at 20 cents to 70c per million British thermal units Monday. That compares with the US benchmark futures contract that’s trading around $5 and European prices close to $28.

If West Texas prices tumble into negative territory, energy producers will effectively be paying someone to take gas off their hands — something that hasn’t happened in two years. 

The price collapse illustrates the sharp contrast between bountiful US supplies of the fuel and Europe’s worsening energy crisis as winter approaches. Bloomberg Intelligence reports that tight gas markets in Europe or Asia could have knock-on consequences for diesel, power, and coal as governments and utilities scramble for fuel.     

The Texas price plunge is due to maintenance that was scheduled for Kinder Morgan Inc (NYSE:).’s Gulf Coast Express and El Paso Natural Gas pipeline systems. 

Insufficient pipeline capacity has been a long-standing problem that has plagued Permian Basin producers of gas for years. When pipeline operators have to perform repairs and preventive maintenance work, the choke points can worsened. This may result in a temporary reduction of pressure or a halt to shipping. 

Permian pipeline constraints “have never been relieved,” making the region more susceptible to sudden gluts and price volatility, said Campbell Faulkner, chief data analyst at OTC Global Holdings LP.

What Bloomberg Intelligence Says

As Severe Weather Europe suggests, a disruption in the polar vortex formation in October — making it more elongated – is channeling colder, more northern hemisphere air towards the US, Canada and Europe. This could increase the possibility of energy shortages due to heating needs rising, which could fuel strong demand for oil and coal products.

— Henik Fuung and Chia Chengchen, BI analysts

You can read the entire report here.

Bloomberg data shows that Waha Gas went negative eight times in 2020, and more than two-dozen times in 2019, according to Bloomberg. 

(Adds European context to second and fourth paragraphs.

©2022 Bloomberg L.P.

 

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