Permian Basin benchmark Waha cash prices, mired in a protracted slump amid limited natural gas takeaway capacity and a supply glut, may see the summer come and go without relief. But a massive new pipeline is slated to enter service this fall, promising to free up an abundance of associated gas and ease pricing pressure.
Waha traded in negative territory through most of the spring and summer, with producers forced to pay to have excess supply taken away and often stored underground. The hub on Tuesday averaged negative 69.0 cents/MMBtu, down 2.0 cents on the day, according to NGI data.
Permian supplies are driven by associated gas produced alongside oil. Crude production in the prolific basin reached record levels this year amid global demand strength and slower activity among Saudi Arabia-led OPEC and allied oil-rich countries. Overall U.S. petroleum output hit all-time highs above 13 million b/d multiple times, according to the latest U.S. Energy Information Administration (EIA) data. Nearly half of that supply came from the Permian. That remains the case in August.
Associated gas, by extension, is near record levels, and a key driver of overall natural gas output that has consistently held above 100 Bcf/d this year.
Jacob Thompson, managing director at Samco Capital Markets, told NGI that Permian oil and gas output, while varying from any given week to another, remains at strong levels. Further growth is likely to be restrained until takeaway options materialize, but “I don’t think there’s any big pullback coming,” he said.
That is in part because the long-awaited 2.5 Bcf/d Matterhorn Express Pipeline is expected to come online this fall. It would provide natural gas egress from the Permian to the Katy area near Houston.
The added capacity is crucial to drive flows out of the Permian and to buyers outside of the basin for delivery to South Texas as well as western markets such as Southern California that depend on supply from the basin. LNG facilities along the Gulf Coast also are poised to gradually ramp up activity to meet coming winter export demand from Asia and Europe.
Matterhorn coming online is “going to be a positive” for “the broader sector as we move more of those molecules away from the Waha hub,” Devon Energy Corp. CFO Jeff Ritenour said during the company’s recent second quarter earnings call. Devon, one of several partners behind Matterhorn, operates in the Permian’s Delaware sub-basin.
Additionally, five liquefied natural gas projects are under construction along the Gulf Coast to increase U.S. export capacity from 14 Bcf/d to nearly 25 Bcf/d by the end of the decade. Those facilities would add competition for Permian supply.
“From our standpoint,” Matterhorn “absolutely is going to move molecules over to the Gulf Coast,” Ritenour said. “We’re hopeful to take advantage of the LNG pricing improvement that we’ll see over time as those projects get built out.”
In the meantime, merely freeing up flows should end Waha’s worst woes and help sustain positive prices at the hub heading toward winter, said RBN Energy LLC analyst Taylor Noland. She noted that Matterhorn – a joint venture among Devon, WhiteWater Midstream LLC, EnLink Midstream LLC, and MPLX LP – was expected to launch this summer, but was delayed by Hurricane Beryl in July. Operations are now expected to start in September or October.
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“The pressure is building,” Noland said, referring to the depressed Waha prices. But “relief is on the horizon.”
Until then? “It’s more of the same,” she said. Waha prices “are likely to remain suppressed, frequently negative.”
Analyst Oren Pilant of East Daley Analytics noted that, initially, “as this new Permian supply floods into South Texas, we expect to see downward pressure” on Houston Ship Channel prices, given that “demand growth in the region is limited in 2024.” But after this year, as new LNG facilities ramp up, so could demand and prices. NGI’s Houston Ship Channel on Tuesday was up 5.5 cents to $1.895.
RBN analysts also noted that strong demand from Mexico, and improved ability to meet it via greater flows out of the Permian, could further bolster prices, particularly at Waha. Exports to Mexico through Waha are averaging just below 2 Bcf/d so far in August,” the RBN team said in a report this week. That is up from an average of 1.76 Bcf/d in July. “Outflows to Mexico typically peak in the summer when power demand is at its highest, so outflows will likely continue to be strong this month and then taper off somewhat in the fall.”
On the Atlantic coast of Mexico, RBN analysts added, “the recent start of exports from Altamira LNG will also lead to higher demand for gas. This terminal will receive gas from the Agua Dulce market, which is partially supplied by Permian gas…The facility is a small one and only needs about 0.2 Bcf/d of feed gas at full operation. Nevertheless, Mexico seems poised to continue as a bullish factor for a Permian gas market that has seen little reason for bullishness this year.”
