Natural gas prices at the Waha hub in West Texas plummeted to record low negative levels on Wednesday, as pipeline constraints and problems at compressor stations at one pipeline stranded gas produced in the most prolific U.S. shale oil basin.
Real-time or next-day prices at the Waha hub in Texas have stayed at negative levels since March 22, so drillers have had to pay companies with capacity to ship the gas via pipeline.
On Wednesday, the spot Waha hub prices plunged to minus $3.38 per million British thermal units (MMBtu), from minus 2 cents for Tuesday, data from the Intercontinental Exchange (ICE), cited by Reuters, showed.
Adding to the chronic pipeline constraints for both oil and gas in the Permian basin, last month equipment failures at two compressor stations along the El Paso Natural Gas Pipeline in New Mexico resulted in El Paso declaring a force majeure and reducing the takeaway capacity of the pipeline.
Gas production in the Permian has been rising in lockstep with crude oil production, and even though gas takeaway capacity has attracted less media attention, pipeline constraints for natural gas are similar to those of crude oil pipeline capacity.
The natural gas takeaway capacity constraints have resulted in more gas flaring in the Permian on the one hand, and in a record-high spread between the Waha gas hub price and the U.S. benchmark Henry Hub in Louisiana, on the other hand.
On Wednesday, the differential jumped to an all-time high of US$6.14 per MMBtu, beating the previous record of US$5.85 from February 1996, according to data from ICE and Refinitiv Eikon compiled by Reuters.
To compare, the spread averaged just over US$1 per MMBtu throughout 2018.
In the Permian, drillers have been literally burning profit because of pipeline constraints. Surging volumes of natural gas have become a kind of a side product that drillers prefer to burn off instead of shutting in wells and missing out on monetizing the oil production gushing out in the Permian. Company executives admit that they wouldn't flare as much gas as they do if they had a choice.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More