Permian diverts more gas Northbound as spread to NGPL Midcontinent widens

Northbound gas transmissions from the Permian Basin are up sharply over the past month, as cash markets in the US Midcontinent hit steep premiums to prices in West Texas.

From Oct. 1 to date, flows northbound from the Permian have averaged over 750 MMcf/d. That's up from average flows around 540 MMcf/d in September and just 340 MMcf/d averaged during the summer months of June, July and August, data compiled by S&P Global Platts Analytics showed.

The uptick in northbound deliveries comes as the Midcontinent and West Texas gas markets face opposing pressures, lifting prices at NGPL Midcontinent and other neighboring locations to a premium over Waha. Since the start of October, cash prices at the benchmark Midcontinent hub have averaged about $5.14/MMBtu compared with an average $4.98 at Waha, Platts data showed.

In the Midcontinent, a drop in production over the past year and cut in supply delivered from the Rockies has tightened balances this autumn compared to last. In West Texas, maintenance is likely the main culprit for weaker prices over the past month. In October, prices at Waha briefly dipped below $4/MMBtu – nearly $1.50 below Henry Hub – as maintenance on the 2 Bcf/d Gulf Coast Express Pipeline cut capacity by some 750 MMcf/d, or almost 40%, for nearly an entire week.

Winter outlook

The premium at NGPL Midcontinent marks a sharp reversal from this summer when the hub traded at a discount to Waha. At the time, strong coastal demand for Permian gas diverted much of the basin's supply to markets in California, the Southwest and the US Gulf Coast.

This coming winter, the current trend is likely to revert to the one seen this summer.

In the forwards markets, NGPL Midcontinent is currently priced at an averaged $5.86/MMBtu for the peak-winter months of December, January and February. For the same three-month period, Waha is pricing marginally higher at $5.91, Platts' most recently published forwards data shows.

The market's anticipation of premium winter prices at Waha this season is likely predicated on strong expected demand along the US Gulf Coast, and potentially, record-high prices in Southern California.

On the Gulf Coast, the recent initiation of feedgas deliveries to Sabine Pass Train 6, and the fast-approaching startup of deliveries to Calcasieu Pass Trains 1 and 2 is likely to lift total US LNG export demand to levels comfortably above 12 Bcf/d, according to recent forecasts from Platts Analytics.

On the West Coast meanwhile, pipeline maintenance and other supply constraints could push already elevated cash prices in Southern California to new highs this winter. In the forwards market, SoCal city-gate is currently pricing at $8.80/MMBtu for December and $8.43/MMBtu for January, Platts M2MS data showed.