ANALYSIS: Pipeline repairs, maintenance work to keep pressure on Permian Basin gas prices

Natural gas basis prices at the West Texas Waha Hub could undergo sustained pressure through September as pipeline repairs and maintenance work in Arizona and Southern California continue to push back on westbound gas transmissions from the Permian Basin.

On Aug. 15, El Paso Natural Gas declared a force majeure on its Line 2000 near Coolidge, Arizona, limiting westbound flows on the pipe by nearly 580 MMcf/d. Prior to that, SoCal Gas began its own separate maintenance in the Topock sub-zone of Southern California, also limiting receipts from El Paso.

Combined, the two maintenance projects have limited westbound transmissions from the Permian Basin. As more West Texas production is diverted away from the West Coast, Permian producers have begun shipping more gas northbound toward Oklahoma. The increased exposure to lower-priced markets in the Midcontinent has weighed on basis prices at Waha.

Since Aug. 15, the cash market at Waha has dipped to an average 32-cent discount to the benchmark Henry Hub, down from an average 24-cent discount in the 30 days prior, S&P Global Platts data showed.

The price pressure at Waha has come in spite of rising temperatures in late August and strong gas-fired power in Texas.

Flows

Over the past 12 days, westbound gas transmissions from the Permian have dropped about 400 MMcf/d from the 30-day period prior to the maintenance, Platts data showed.

Limited access to West Coast gas markets has pushed more Permian Basin production northbound on Northern Natural Gas, Natural Gas Pipeline Co. of America, and El Paso's northbound mainline.

Since Aug. 15, northbound flows from West Texas have jumped about 240 MMcf/d.

Modeled data suggests that the remaining 160 MMcf/d now being diverted away from the West Coast is likely being shipped eastbound on intrastate lines – potentially Gulf Coast Express, Permian Highway Pipeline or Whistler Pipeline.

Regardless, reduced exposure to higher-priced West Coast markets has weighed on Waha's cash basis.

Maintenance

Even before the Aug. 15 force majeure, maintenance work on another pipeline system had already begun pushing back on El Paso's westbound flows.

On July 26, SoCalGas started planned work on the Newberry Compressor Station, slashing capacity through Topock – one of the two main interconnects for supply flowing to SoCalGas from El Paso.

Flows through Topock have remained at zero since the day before the maintenance, down from an average 101 MMcf/d in the 30 days prior, Platts Analytics data showed.

With one route into the California market closed, El Paso's Topock flows were likely shifted to the Pacific Gas & Electric system. Since July 26, PG&E receipts from El Paso have risen about 130 MMcf/d from the month prior.

Topock Zone capacity will remain unavailable through the end of the year, according to critical notice published Aug. 26 by SoCalGas, extending the outage beyond its original September end date.

The utility's remaining available major receipt point with El Paso, Ehrenberg, has also seen inflows fall by about 230 MMcf/d to average 610 MMcf/d since El Paso's force majeure was announced.

Strong demand for thermal generation has made Southern California a premium market for Permian gas this summer. From June 1 to date, cash SoCal city-gate has averaged $5.70/MMBtu, according to Platts data. With the combined capacity restrictions significantly limiting inflows to the SoCalGas system, though – potentially well into the autumn months – Permian gas prices will likely remain under sustained pressure.