Permian spot gas prices boosted to six-month highs on lower production, strong eastbound flows

Cash prices for next-day flows of gas in the Permian saw double-digit gains in Sept. 1 trading, supported by ample eastbound takeaway capacity to the Gulf Coast and lower production.

Spot Waha Hub traded 23.50 cents higher at $4.295/MMBtu, its highest price since the mid-February deep freeze, according to preliminary settlement data. The Permian gas benchmark has gained nearly 90 cents over the last 10 trading days.

Other Permian spot gas prices have seen similar gains, with El Paso, Permian Basin trading 26 cents higher at $4.295/MMBtu and Transwestern, Permian Basin gaining 37.50 cents to reach $4.205.

Tighter supply-demand fundamentals

Lower production has contributed to the spot gas price rally.

Permian gas production fell to 11.9 Bcf Sept. 1, down 100 MMcf from the prior day and 300 MMcf lower than an average of the prior 30 days, according to S&P Global Platts Analytics data.

Ongoing pipeline maintenance and repair work in the area has likely shut in some production.

Most recently, El Paso Natural Gas pipeline system announced a force majeure Aug. 31 that will restrict flows through Waha Station by an additional 330 MMcf/d, bringing the total reduction to 500 MMcf/d, and leaving only 100 MMcf/d flow capacity for the foreseeable future.

Pipeline nomination data shows that flows past EPNG's Waha GE segment dropped 150 MMcf to 100 MMcf Sept. 1.

This latest flow restriction compounds the impact of EPNG's Line 2000 repair work, which follows an Aug. 15 force majeure on Cimarron Compressor Station near Coolidge, Arizona.

With the full 608 MMcf/d flow capacity along Line 2000 slashed to zero for the foreseeable future, capacity through a number of segments that carry gas west has been reduced.

Ehrenberg, the larger of EPNG's two delivery points into SoCalGas system, has had its 2.3 Bcf/d operational capacity cut by nearly 500 MMcf 1.8 Bcf/d. Deliveries to SoCalGas at Ehrenberg have dropped accordingly, down to about 480 MMcf/d Sept. 1, down from an average of 700 MMcf/d in August.

EPNG's other interconnect with SoCalGas, Topock, has been unavailable for deliveries since July 26, when SoCalGas system began maintenance work that is scheduled to continue through the end of the year.

Eastbound flows

Recently increased eastbound takeaway capacity from the Permian has increased the basin's exposure to premium Southeast pricing, which has proved particularly valuable in light of current westbound capacity restrictions.

Platts Analytics modeled data shows implied eastbound flows climbed to a year-to-date high of 7.98 Bcf Sept. 1. Total eastbound Permian takeaway capacity is about 10 Bcf/d, leaving about 2 Bcf/d available, thanks to the recent addition of Whistler Pipeline, which added 2 Bcf/d of capacity.

Offshore Gulf of Mexico gas production is yet to be fully restored after Hurricane Ida, which made landfall southwest of New Orleans Aug. 29.

Approximately 83.2%, or 1.88 Bcf/d, of Gulf of Mexico gas production remained shut in as of Sept. 1, the US Bureau of Safety and Environmental Enforcement said in its daily update.

Although Louisiana has ongoing power outages that affect residential, commercial and industrial gas demand, the cuts to local supply have exceeded the demand reduction, boosting Southeast spot gas prices to a range of $4.40-$4.60/MMBtu.

In recent years, three new eastbound intrastate pipelines to the Gulf Coast have been added to carry Permian Basin production: the 2 Bcf/d Gulf Coast Express in September 2019, the 2.1 Bcf/d Permian Highway Pipeline in January 2021 and the 2 Bcf/d Whistler Pipeline in August 2021.

The additional 6 Bcf/d in outflow capacity has relieved constraints, which saw Waha Hub and other Permian spot locations repeatedly turn negative in 2019 and 2020.

Outlook

Nearly 2 Bcf/d in offshore Gulf Coast gas production could come back online in the coming weeks, displacing some Permian inflows. The restoration of flows will likely coincide with the typical seasonal shift to lower power burn as temperatures cool.

These factors could have a bearish impact on spot gas prices in the Southeast and Permian alike, although continued strong export demand could provide a floor for prices.