Permian gas production soared to a new record high Feb. 18, which, combined with a forecast for warmer temperatures in West Texas, weighed down cash Waha Hub and other regional spot prices in Feb. 18 spot trading for Feb. 19-22 flows.

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Cash Waha Hub fell 22 cents to $3.96/MMBtu on Feb. 18, widening its basis to cash Henry Hub to 64 cents, preliminary Platts settlement data shows. Similarly, cash Transwestern, Permian Basin fell 26.50 cents to $3.875/MMBtu.

Waha Hub has seen its spread widen as Permian production climbed above the 14 Bcf/d mark, averaging a 55-cent discount Feb. 10-17, compared to a 32-cent discount for the prior 30 days.

Record-high production

Gas production in the Permian reached 14.34 Bcf on Feb. 18, the highest level recorded in data going back to 2012, according to S&P Global Platts Analytics. Daily gas production has come in above 14 Bcf/d for Feb. 10-18, putting this February on the path to be the strongest month for Permian gas production on record.

Prior to this month, daily Permian production had risen above the 14 Bcf/d mark just four times.

The stronger production has been supported by the basin's growing rig count, which reached 308 for the week ended Feb. 16, data from Enverus shows. This is three rigs higher than the previous week and 50% higher than the same week a year ago when the basin had 205 rigs in operation.

Warmer West Texas temperatures

The National Weather Service forecast that temperatures in West Texas would warm up over the next several days, alleviating the risk of additional production freeze-offs and lowering local gas demand.

Midland, Texas, was expected to see its daily low temperature rise into the 40s Fahrenheit Feb. 19-22 from 32 F Feb. 18. Daily highs were also forecast to warm, climbing out of the 50s F Feb. 18 and into the 60s and 70s F Feb. 19-22.

While West Texas was set to see temperatures thaw slightly, daily low temperatures in New Mexico were expected to remain below or near-freezing in the near-term. This temperature divergence showed up in Feb. 18 cash pricing, with Transwestern, San Juan and El Paso, San Juan seeing much smaller losses on the day than Waha Hub and El Paso, Permian.

Outlook

Waha Hub's futures contracts were trading slightly lower on the Intercontinental Exchange on Feb. 18, suggesting that the market may be factoring in the impact of stronger production on local supply and demand dynamics. Waha's March contract was trading around 4 cents lower at a 58.81 cent discount to Henry Hub, while the April contract fell 3 cents to trade at a 68 cent discount.

Even with the higher production, winter is not over yet though. Below-normal temperatures are forecast to return the region as soon as Feb. 23, which could provide spot gas prices a boost. The weather service's six- to 10-day outlook shows a strong likelihood of below-average temperatures across the western and central parts of the country, including Texas and New Mexico.