Permian spot gas prices rise on winter storm watch, restored pipeline capacity

New York — Cash prices for natural gas in the Permian Basin increased on Dec. 29 for next-day flows as wintry weather increases local demand for gas and the scheduled completion of a short-term maintenance project restores westbound pipeline takeaway capacity.

Waha Hub was trading 8 cents higher at $2.20/MMBtu, while El Paso, Permian gained 10 cents to trade at $2.24/MMBtu.

The National Weather Service has issued a winter storm watch for most of West Texas for the afternoon of Dec. 30 through the evening of Dec. 31.

West Texas temperatures are forecast to drop below freezing on Dec. 30, with a low of 28 degrees F expected in Midland, Texas. Such below-freezing lows in the 20s F are forecast to continue through at least Jan. 1, according to National Weather Service predictions.

S&P Global Platts Analytics projected that gas demand in Texas would rise sharply over the next several days, surging around 2 Bcf from Dec. 29 levels to nearly 12 Bcf/d on Dec. 31. The increase was expected to be split evenly between gas demand for heating and power generation.

Supply

El Paso Natural Gas pipeline issued a critical notice on Dec. 29 about the West Texas weather forecast, noting that "EPNG has historically experienced supply underperformance in the Permian Basin as a result of winter weather with temperatures below freezing." The notice went on to assert that EPNG is "in the process of increasing the line pack as a bridge to any Permian Basin supply under performance."

Permian gas production, which has averaged 11.1 Bcf/d for the last seven days (Dec. 22-28), fell around 100 MMcf to 11 Bcf on Dec. 29, according to Platts Analytics sample data. A more dramatic drop in production later in the week is possible. In late October, a cold snap in West Texas with lows similar to those forecast for Dec. 30-Jan. 1 pushed production to average 8.6 Bcf/d for Oct. 26-28, down nearly 2 Bcf/d from averaging 10.4 Bcf/d for the seven days prior (Oct. 19-25).

Pipeline capacity

Another factor in the uptick in Permian spot gas prices was the scheduled completion on Dec. 30 of planned short-term maintenance work on EPNG's Line 2000 segment from Afton to Lordsburg. The maintenance, which involved smart-pigging through the segment, reduced flows through Lordsburg compressor station to average 260 MMcf/d for the duration of the maintenance, Dec. 27-29, according to Platts Analytics flow data. This is a decrease of around 345 MMcf/d from its Dec. 1-26 average of 604 MMcf/d. With no notice of an extension of the maintenance at time of publication, flows along this corridor are anticipated to see a healthy bounce back to pre-maintenance levels on Dec. 30.

With substantial westbound capacity out of the Permian restored, spot gas prices in the San Juan part of the Southwest saw a greater lift, likely to incentivize northbound flows. El Paso, San Juan was trading up 19 cents at $2.66/MMBtu.

This additional flow capacity for Dec. 30 also put downward pressure on some Southwest demand locations to the west of the Permian. El Paso, South Mainline fell 17 cents in Dec. 29 trading to reach $3.36/MMBtu.

Looking ahead, the combination of below-freezing temperatures and restored outbound pipeline capacity will likely provide further support to Permian spot gas prices for the remainder of the week. Dramatic price increases are possible, particularly if the wintry weather forces some production off line.