Texas natural gas plunges toward zero as output swamps pipelines

(Bloomberg) — Natural gas prices in the Permian Basin of West Texas are plunging toward zero as booming production overwhelms pipeline networks, creating a regional glut of the fuel.

Gas in an area of the vast Permian known as Waha was trading for as little as 20 cents to 70 cents per million British thermal units on Monday, traders said. 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. Tight gas markets in Europe and Asia threaten to have knock-on effects for diesel, coal and power as governments and utilities scramble for energy, according to Bloomberg Intelligence.     

The Texas price plunge stems from maintenance scheduled for Kinder Morgan Inc.’s Gulf Coast Express and El Paso Natural Gas pipeline systems. 

Insufficient pipeline capacity has actually been a long-term problem that has dogged Permian Basin gas producers for years. The choke points worsen when pipeline operators must perform repairs and preventative maintenance work that forces temporary reduction in pressure or halts 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

An early-October disruption in polar vortex formation -- making it more elongated -- is channeling colder air toward the upper northern hemisphere, including the US, Canada, Europe and China, as Severe Weather Europe suggests. That could raise the specter of energy shortages as heating needs spike, stoking strong demand for natural gas, coal and oil products.

-- Henik Fung and Chia Cheng Chen, BI analysts

Waha gas went negative eight times in 2020 and more than two dozen times in 2019, data compiled by Bloomberg shows.