Waha cash price averages $2.53/MMBtu month to date
Lower production, new capacity boost West Texas prices
Southwest, Midcontinent, Gulf Coast premiums narrow
New York — Higher Permian Basin natural gas prices this winter are narrowing cash-market spreads from West Texas to key downstream destinations, prompting a sharp decline in northbound flows to the Midcontinent.
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Register NowIn January, spot gas prices at Waha have averaged $2.53/MMBtu, or nearly four times the location's month-to-date average last January. At mid-session Jan. 19, cash prices at Waha were down about 18 cents to $2.38/MMBtu, intraday trade data from the Intercontinental Exchange showed.
Stronger Permian gas prices this winter can be attributed in no small part to a steep drop in West Texas gas production in the past year, and to the recent startup of Kinder Morgan's Permian Highway Pipeline.
Month to date, gas production from the Permian has averaged 11.8 Bcf/d, down about 200 MMcf/d from December and nearly 10% below the basin's record high around 13 Bcf/d in March 2020, data compiled by S&P Global Platts Analytics shows.
As lower production eases pressure on the Permian's once heavily congested transmission corridors, the addition of some 2.1 Bcf/d in new eastbound capacity on Permian Highway – which began commercial operation earlier this month – has also given West Texas producers incremental access to higher-priced industrial and export markets along the Gulf Coast.
Price spreads
While higher Permian gas prices have been a boon for West Texas producers, the stronger cash market there has also narrowed the spread to traditional end-user markets in the Southwest and the Midcontinent.
Month to date, El Paso San Juan hub has averaged just a 12 cent/MMBtu premium to Waha, down from an average 16 cents in December and a more-than $1 premium, month-to-date last January.
After turning negative in early January, the price spread from Waha to the NGPL Midcontinent hub remains exceptionally weak this month, averaging minus 3 cents/MMBtu, Jan. 1 to date.
Spreads eastbound from the Permian to the Gulf Coast have also weakened in response to higher prices at Waha. While Katy and Houston Ship Channel continue to trade at premiums to Waha this month, both spreads have narrowed significantly, falling to an average 8 cents and 11 cents/MMBtu in January.
Gas transmission
Higher Permian gas prices and tighter spreads to destination markets appear to be having the largest impact on northbound transmissions into the Midcontinent.
Through mid-January, flows to the Midcontinent have averaged about 300 MMcf/d with total capacity less than 30% utilized. As recently as November – prior to the startup of initial flows on Permian Highway – utilization on the northbound corridor from West Texas averaged over 85%.
A significantly stronger price spread from Waha into the Southwest this month has capacity utilization along that corridor rise this month to an average 93% – up from 87% in December, Platts Analytics data shows.
Forwards market pricing suggests that a significant shift in flow dynamic could emerge by this shoulder season. For the calendar months of April and May, the NGPL Midcontinent hub is priced at an average 10 cent premium to Waha, compared to just a 2 cent premium at El Paso San Juan. This summer, that dynamic is expected to change again, with NGPL pricing below Waha while El Paso San Juan holds a narrow but positive spread to the West Texas market.
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January 20, 2021 at 05:58AM
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Stronger prices, narrowing spreads at Waha drive shift in Permian gas transmissions - S&P Global
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