Permian Basin gas prices rebound as major El Paso maintenance ends

Spot gas prices in the Permian Basin edged back into positive territory on Dec. 15 following an unexpectedly early end to major pipeline maintenance on El Paso Natural Gas.

In morning trading gas prices at Waha were moving around 65 cents. At other West Texas locations on El Paso and Transwestern, cash prices were trading at similar levels, data from Intercontinental Exchange and Platts showed. Platts is part of S&P Global Energy.

Earlier this month, spot gas prices across the Permian Basin slid into negative territory just ahead of a major maintenance-related flow restriction on El Paso. At Waha, gas prices have averaged about minus-$1.70 in the past week, briefly trading as much as $6-$7 in the red.

According to pipeline operator Kinder Morgan, anomaly repairs in the Lordsburg scheduling location began restricting flows by some 575 MMcf/d on Dec. 6. During the week-long maintenance, flows were restricted by as much as 600 MMcf/d.

On Dec. 13, though, repairs from San Simon to MLV 49 were completed, reducing the Lordsburg-area flow restriction to just over 200 MMcf/d, a scheduling notice posted to El Paso's electronic bulletin board showed.

Market balancing

During the seven-day maintenance, extreme price volatility prompted some Permian gas traders to rely on storage in an attempt to alleviate oversupply.

On El Paso Natural Gas, receipts from the Keystone Storage and Merchant Grama Ridge facilities reversed to deliveries during the maintenance. According to John Odwyer, natural gas market analyst with S&P Global Energy CERA, the change implies a flip from storage withdrawals to El Paso to storage injections at both locations.

Painfully low prices around the Permian Basin also prompted a slowdown in gas production. During the week leading up to the maintenance, output averaged about 23.6 Bcf/d. Several days after, production quickly dropped to around 23 Bcf/d, and briefly dipped below that level over the recent weekend, data from CERA showed.

Outlook

Beginning around mid-November the startup of service on Matterhorn Express Pipeline's 500 MMcf/d expansion project helped to lift Permian gas price from negative territory.

Although the West Texas' gas market remains finely balanced, and clearly susceptible to disruptions in transmission capacity, the project should still help to boost gas prices over the next several months – at least during the peak winter heating demand season.

In the forward gas market, traders have continued to bank on price volatility through December when the maintenance on El Paso was originally scheduled to end.

At Waha, the balance-of-month forward contract settled Dec. 12 at just 10 cents/MMBtu. For January and February, the benchmark Permian location was priced at around $1.70 and $1.80, respectively. March, meanwhile, settled at just over a penny, data from Platts showed.