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Apache Corporation said on Tuesday that it had temporarily started to delay natural gas production at its Alpine High play in the Permian in late March to mitigate the impact of the extremely low prices at the Waha hub in West Texas.
Currently, the company is deferring around 250 million cubic feet (MMcf) per day of gross gas production.
Natural gas prices at the Waha hub plummeted to record low negative levels in early April, as pipeline constraints and problems at compressor stations at one pipeline stranded gas produced in the Permian.
Spot prices at the Waha hub plunged to a record low of minus $4.28 per million British thermal units (MMBtu) in the first week of April.
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.
“We will closely monitor daily pricing and return our gas to sales when it is profitable to do so. We are carefully managing these actions so there is no adverse impact on long-term wellbore integrity or reservoir productivity and look forward to returning this production to market as soon as practical,” John J. Christmann IV, CEO and president of Apache Corporation, said in a statement today.
Apache contracted two years ago more than 1 billion cubic feet (Bcf) per day of long-term, firm takeaway capacity from the Permian Basin on Kinder Morgan’s pipeline projects Gulf Coast Express and Permian Highway, Apache said, noting that Gulf Coast Express is expected to be in service later this year, while Permian Highway is set to start operations next year.
“We anticipate relatively wide and volatile natural gas price differentials in the Permian Basin until the Gulf Coast Express pipeline enters service. As a long-term returns-focused company, we know that production deferrals such as this will improve financial performance despite the impact on near-term volumes. This is the proper approach from both an environmental and economic perspective relative to other industry practices such as flaring or selling associated gas at a negative or unprofitable price,” Apache’s Christmann said.
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.