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Waha gas prices jump higher as Gulf Coast Express adds outbound capacity

The new capacity available by putting Kinder Morgan Inc.'s Gulf Coast Express Pipeline LLC pipeline project in full service ahead of schedule Sept. 25 nearly doubled spot gas prices at the Permian Basin's Waha Hub to $2.08/MMBtu.

The sharp move up mirrored the overall price movements at Waha over the past three months, which gyrated from positive to negative to positive territory as the 2-Bcf/d pipeline began moving more gas. The legacy Permian gas system has been inundated by associated gas from booming shale oil wells, gas that often has nowhere to go but up in flames as it is flared or to local buyers that are paid to take the gas away, which results in negative prices.

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Gulf Coast Express is only a short-term safety valve for Permian oil producers. More relief will be needed as oil production grows, analysts said.

"Though ongoing [Gulf Coast Express] line-pack has driven material basis contraction (Waha-Katy $0.85/Mcf), current pipeline queue of [Gulf Coast Express], [Permian Highway pipeline] and [Whistler pipeline] provides intermittent relief for Waha as [an estimated] ~2.0 Bcf/d of annual residue gas growth neatly matches additional takeaway capacity," analyst at energy investment bank Tudor Pickering Holt & Co. said Sept. 25. "Market will need to see progress on additional capacity late 2021, early 2022 to underwrite a more structural improvement in basin takeaway dynamics."

Tudor Pickering Holt predicted that Gulf Coast Express' 2 Bcf/day of capacity will fill in the next six months, followed by a six-month wait for Kinder Morgan's Permian Highway, then nine months until the opening of private equity infrastructure fund Stonepeak Partners LP's Whistler.

But the question of who will buy the fresh Permian gas coming onto an already glutted national market led Moody's to cut the gas price it uses for credit ratings of oil and gas producers by 25 cents/MMBtu earlier this month.

There did not appear to be any relationship between the benchmark Henry Hub spot price over the last three months and the additions or subtractions of Gulf Coast Express, according to S&P Global Market Intelligence data.

Analysts at Barclays Capital Inc. think that there is some relief for the U.S. market following recently concluded agreements with gas pipelines in Mexico. "We suspect the outlook is a bit better given the amount of gas currently being flared and incremental basin production growth," Barclays said Sept. 9. "We also note that the recent agreement between Mexico and pipeline operators in the country could further boost exports, providing another possible outlet for Permian gas."