Whistler Pipeline halves Permian northbound flows as winter bidding war looms

The recent startup of Whistler Pipeline is putting added pressure on northbound flows from West Texas as shippers divert Permian Basin gas to more premium Gulf Coast markets. The additional eastbound capacity could also fuel price spikes on the West Coast this winter as hubs there are forced to bid up for Permian supply.

Following the commercial startup of Whistler Pipeline July 1, northbound flows from the Permian have averaged just 220 MMcf/d – roughly half the volume shipped to markets in the Midcontinent and the Midwest in the second quarter, S&P Global Platts Analytics data showed.

Last week, the pipeline's owner consortium announced the project's earlier startup in July amid an acceleration in commercial activity, including newly reported deliveries to several connecting interstate pipelines. As a result of the recent activity, northbound flows from the Permian have continued to decline in August, averaging just 200 MMcf/d month to date.

Spreads

The drop in northbound volumes comes following a steep rise in cash prices at Waha this summer.

During the final days of June, spot prices at Waha surged to the mid-$3s/MMBtu, likely fueled by the initial startup of service on Whistler Pipeline. Despite an accompanying across-the-board rise in US gas prices, destination-market hubs for Permian gas have failed to keep pace with the strength at Waha. Previously profitable spreads from the Permian to the Midcontinent have plunged, while spreads to the Gulf Coast and West Coast have compressed.

From July 1 to date, NGPL Midcontinent has traded at an averaged 1.7 cents discount to Waha, down from a second-quarter premium of nearly 6 cents. Houston Ship Channel, to the east, has seen its premium compress to 15 cents since early July – down from a Q2 spread of 25 cents. El Paso San Juan, to the West has seen it's own premium dwindle to 3.6 cents over the past six weeks, falling from a second-quarter average of nearly 8 cents, S&P Global Platts data showed.

West Coast price risk

This coming winter, the additional eastbound capacity on Whistler Pipeline should allow Gulf Coast hubs to exert greater price pressure on Waha than they have in winters past. Thanks to Whistler's added 2 Bcf/d in eastbound capacity, Permian Basin shippers' access to the Gulf Coast market should remain unimpeded by midstream capacity, allowing Gulf Coast hubs to exert upward pressure on the West Texas market.

As demand in the East Texas and Louisiana markets rises this winter, gas prices at Waha should remain more tightly threaded to the Gulf Coast market, potentially forcing hubs like El Paso San Juan – and others further west – to price up in an effort to attract Permian supply.

Over the past two winter seasons, the West Coast market's delivered share of Permian Basin gas production has steadily declined, following the startup of Kinder Morgan's Gulf Coast Express Pipeline in September 2019 and its Permian Highway Pipeline in January 2021.

From November 2018 to March 2019, the West Coast market received an estimated 36% of Permian Basin production. From November 2019 to March 2020, the West Coast market's share dropped to about 30%. Over the same period last winter, the West Coast received just 27.5% of the Permian's production, data from S&P Global Platts Analytics showed.