Oil & Gas News

Lower Permian gas production, higher prices promise shift in 2021 flows

natural gas, nat gas, gas price, gas futures, gas

By: J. Robinson – S&P Global Platts – A steep drop in Permian gas production this year is driving a significant shift in regional flow dynamics that’s likely to endure into 2021 as higher West Texas gas prices cut supply flowing to the Midcontinent and San Juan markets.

Following a 3.8 Bcf/d, or nearly 30%, decline in Permian Basin gas production that came following the oil-market collapse earlier this year, West Texas producers have since struggled to mount a recovery.

In December, output has averaged just 10.4 Bcf/d as the basin’s growing inventory of aging wells reverses a mid-summer rebound that was largely fueled by previously curtailed production.

This summer, Permian output briefly topped 12 Bcf/d as shuttered wells were brought back online. In the first quarter – prior to the March collapse in oil prices – production briefly reached a record high at 13 Bcf/d, data compiled by S&P Global Platts Analytics shows.

With Permian supply now sputtering and winter demand rising, West Texas gas prices have rallied in recent months. Over the past 30 days, the Waha cash market has averaged about $2.30/MMBtu as constraints on the Permian’s principal production-takeaway pipelines continue to ease.

With lower production levels expected to endure, forwards markets have also rallied. At Waha, the 2021 calendar-year curve is now trading around $2.50/MMBtu, S&P Global Platts’ M2MS data shows.

Lower pipeline utilization rates, in combination with higher Waha gas prices, are changing West Texas market dynamics, putting supply on some Permian production-takeaway corridors disproportionately at risk, according to Platts Analytics.

Midcontinent, San Juan gas markets

Heading into 2021, pipeline corridors flowing northbound from the Permian into the Midcontinent and northwest into the San Juan region, are already seeing declines in utilization, based on current and forward-market price spreads. In November, northbound pipeline utilization from the Permian averaged about 87%, compared to nearly 99% in August. Over that same four-month period, westbound pipeline utilization fell to about 81%, from over 90% in late summer.

At the NGPL Midcontinent hub, forwards markets are pricing-in a modest premium to Waha of just 4 cents during the first-half of 2021. For H2 2021, the hub is priced at an average 6 cents/MMBtu discount.

Gas prices at the El Paso San Juan hub are also expected to weaken relative to Waha. In the first-half of 2021, the hub is pricing at a 3 cent/MMBtu premium to the Permian benchmark. In H2 2021, San Juan gas is currently priced 2 cents below Waha.

Expansions

While lower anticipated production will be a key driver of the narrowing price spreads, a startup to full service on the 2.1 Bcf/d Permian Highway Pipeline in early 2021 and the 2 Bcf/d Whistler Pipeline in the third-quarter of next year could also play a key role in shifting regional market dynamics.

With another 4 Bcf/d in eastbound capacity, Permian producers should see significantly improved optionality for reaching premium markets on the Texas Gulf Coast.

While price spreads to hubs like Houston Ship Channel and Texas Eastern STX will see a significant weakening in 2021, compared to this year, both locations remain priced at reasonably attractive premiums to Waha in 2021.

In the forward market, Houston Ship Channel is currently pricing at a more-than 20 cents/MMBtu premium to Waha in 2021. At Texas Eastern STX, the forward curve is trading at a similar forward premium, S&P Global Platts M2MS forwards data shows.

All things considered, stronger pricing on the Texas Gulf Coast and increased optionality to reach end-user markets there could see Permian outflows shift considerably away from the Midcontinent and San Juan markets next year in favor of the eastbound corridor.

The crossroads of energy information for minerals owners in Oklahoma. Where you can: See recent prices of mineral and lease transactions. Receive an offer to lease or buy your minerals.

Find relevant news stories on the most active areas, including the Scoop and Stack Plays.

Data Powered by Oseberg

Today’s E&P world is rapidly shifting towards data-driven decision making, but those decisions are only as good as the data behind them. Access Oseberg's deep, accurate, and detailed pool of insight-rich industry data with our powerful analytical and search tools and get the clearest picture of what's happening as soon as it happens.

Disclaimer

This web site is maintained solely for the personal use of our visitors. Although we at Oklahoma Minerals have made all reasonable efforts to provide accurate information, we cannot guarantee the completeness, timeliness or accuracy of the information contained herein. Nothing in this web site contains investment advice. Any decisions based upon the information contained in this web site are the sole responsibility of the user.

Copyright © 2021 OklahomaMinerals.com

To Top
Oil bankruptcies hit highest first quarter level since 2016Read More