Natural gas prices
Natural gas spot prices at the Waha hub in western Texas, located near Permian Basin production activities, closed at $1.55/million British thermal units (MMBtu) on August 15, the highest price since March 2019. This price increase coincides with the 2 billion cubic feet per day (Bcf/d) Gulf Coast Express Pipeline (GCX) preparing to enter service. GCX will provide much-needed additional natural gas take-away pipeline capacity in the Permian region of western Texas and southeastern New Mexico.
Limited natural gas pipeline takeaway capacity in the region has kept prices very low or negative in recent months. In the first eight months of 2019 (through August 19), the Waha spot price averaged just 65¢/MMBtu. The Waha spot price has been consistently lower than the Henry Hub spot price, the national benchmark price for natural gas. However, in recent days, that differential has significantly decreased, with Waha spot prices closing 59¢/MMBtu lower than the Henry Hub spot price last Thursday, the lowest daily differential since mid-March. In comparison, this differential averaged between $2 and $3/MMBtu between March and June of this year.
This recent uptick in the Waha price coincides with flows on the GCX; deliveries into the pipeline began on August 8. S&P Global Platts reported that deliveries at El Paso Natural Gas Pipeline’s interconnection with GCX reached nearly 0.26 Bcf/d on August 14, an indication that GCX is packing its lines in anticipation of entering service late next month, according to industry reports, ahead of its announced in-service date of October 1. Once fully operational, the pipeline will be capable of sending about 2.0 Bcf/d of natural gas eastward to the Agua Dulce receipt point near the Texas Gulf Coast.
The Permian Basin in western Texas and southeastern New Mexico has seen large increases in natural gas production in recent years. Natural gas produced in the Permian Basin is largely associated natural gas, which is natural gas produced as a byproduct of crude oil production. Crude oil take-away capacity in the region expanded in early 2019. Producers in the region may vent or flare natural gas to a limited extent, but these activities are subject to regulation by the Texas Railroad Commission.
