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Permian output at 11.5 Bcf/d, up 1.3 Bcf/d from August

New York — Permian Basin forward gas prices are testing new lows this month as the 2020 market outlook for available pipeline capacity exiting the West Texas basin continues to deteriorate.

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At market close Wednesday, the balance-2020 curve at Waha dipped to its lowest on record at 63 cents/MMBtu. Shoulder-season prices for this year have faced even more downward pressure, with April and May calendar-month contracts falling to an average of just 15 cents/MMBtu earlier this month, S&P Global Platts M2MS data shows.

The cash market hasn't fared much better. After dipping into negative territory in late December, next-day prices at Waha have averaged about 74 cents/MMBtu so far this month.

In first-quarter 2019, the anticipation of new capacity on Kinder Morgan's 2 Bcf/d Gulf Coast Express Pipeline had briefly lifted 2020 forwards prices at Waha to levels above $2/MMBtu.

After the pipeline entered serviced in late September, though, a widening spread between Permian and East Texas gas prices appeared to indicate that the project had quickly filled to its full capacity.

Flows on the intrastate Gulf Coast Express aren't reported publicly, but gains in Permian gas production since last summer would likely be sufficient to fill about 65% of the pipeline's total capacity.

Over the past 30 days, output in the Permian has averaged 11.5 Bcf/d, – equivalent to a 1.3 Bcf/d gain compared to production levels in the month prior to the full startup of Gulf Coast Express.


As Permian output continues to build, hitting a record high at 12.4 Bcf/d recently, market jitters over midstream constraints have re-emerged. Concerns about the possible return of negative prices this year were exacerbated following Kinder Morgan's third-quarter earnings call when executives announced a three-month delay to startup of the company's 2.1 Bcf/d Permian Highway Pipeline.

Regulatory approvals for the project, which have been slower in coming than previously anticipated, have delayed the pipeline's estimated in-service date to first-quarter 2021.

Markets are watching the major expansion project closely, but a distant and much smaller pipeline project in central Mexico could offer a more immediate outlet for at least some Permian gas this year.

Upon startup of Fermaca's Wahalajara pipeline system – a privately developed network of pipes designed to move US gas from West Texas to central Mexico – as much as 380 MMcf/d in Permian gas production could begin flowing southbound across the border, according to Platts Analytics.

The Wahalajara project is expected to reach completion as early as March.

In December, developers marked a key milestone with startup of the La Laguna–Aguascalientes pipeline, a key component of the system's southbound network.

Over the longer term, an FID on the 2 Bcf/d Whistler Pipeline – announced last June by MPLX, WhiteWater Midstream, Stonepeak Infrastructure Partners and West Texas Gas – promises to continue easing Permian capacity constraints through at least the early 2020s.