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Are Natural Gas Markets In Crisis?

Friday April 26, 2019

1. Permian gas prices depressed

(Click to enlarge)

- Natural gas at the Waha Hub in the Permian basin plunged deep into negative territory earlier this year and will remain depressed until new pipelines come online.
- But prices could rise later this year if Mexico begins to import more gas. “Although with significant unutilized export capacity to Mexico, the risk of increased Mexico demand growth providing an outlet for constrained Permian natural gas keeps 3Q19 Waha basis relatively supported,” Bank of America Merrill Lynch wrote in a report.
- A brewing problem for Permian drillers comes in the form of rising gas-to-oil ratios, a sign that the frenzied drilling is showing signs of wear and tear on the basin. That could lead to higher rates of well shut-ins, which would ultimately provide a boost to Permian natural gas prices.
- “[T]he potential for high gas to oil ratio (GOR) wells to shut-in limits Waha weakness, and could provide a brief price spike if too many wells shut in production,” Bank of America said. However, “[a]ny price spike would likely be brief as we expect shut-ins would quickly return to service.”

2. LNG prices crashed as supplies continue to rise

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- The wave of new LNG export terminals coming online this year have led to a plunge in prices.
- “Asian LNG demand digested nearly all of the LNG supply growth…

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