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ANALYSIS: Permian end users bid up basis prices as shifting market dynamic stokes rivalry


El Paso San Juan basis up 25 cents since Jan 2020

Houston Ship Channel basis rises 7 cents on year

Southwest prices rise as Permian Highway starts

New York — Mounting competition for Permian gas has put upward pressure on cash basis at hubs in the Southwest and East Texas recently as limited West Texas supply gets pulled in opposing directions.

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Year to date, cash prices at El Paso San Juan have averaged just 1.5 cents/MMBtu below the benchmark Henry Hub – almost 25 cents higher compared with year-ago levels, data from S&P Global Platts shows.

At Houston Ship Channel, the spot market has traded only a penny below Henry Hub in 2021 and is up about 7 cents compared with year-to-date levels in 2020.

Higher basis prices at both locations this year come following the recent startup of Kinder Morgan's Permian Highway Pipeline. In early January, the initiation of commercial service on the new 2.1 Bcf/d eastbound transmission corridor began upping the ante for West Texas gas.


Over the past eight weeks, total receipts and deliveries from Permian Highway to interconnecting interstate pipelines have doubled to about 500 MMcf/d – up from levels closer to 250 MMcf/d in early December, data compiled by S&P Global Platts Analytics shows.

Flows on Permian Highway itself are not directly observable since the intrastate pipeline is not required to publicly report.

The impact that Permian Highway has had on regional flow dynamics, though, is clear enough. With new, incremental access to premium end-user markets in East Texas, Permian producers have increasingly opted to divert supply away from more discounted legacy markets.

In January, interstate pipeline flows westbound from the Permian Basin averaged about 3.72 Bcf/d, or about 210 MMcf/d below year-ago transmission levels. Northbound flows from the Permian have also suffered, averaging about 375 MMcf/d last month, compared with levels at over 1 Bcf/d in January 2020, Platts Analytics data shows.


Over the past 12 months, a sharp drop in Permian gas production has also raised the stakes for the basin's supply, driving up prices at once discounted West Texas locations like Waha.

In January, gas production from the Permian averaged about 11.9 Bcf/d, remaining almost 1 Bcf/d below its record-high monthly average recorded in March 2020. Assuming rig counts remain mired around current levels, production growth in the Permian isn't likely to resume until late this year, or early 2022, according to a recent forecast from Platts Analytics.

On Feb. 4, total rig count in the Permian Basin was estimated at 205, or its highest since May. In early March, drilling activity in West Texas began its steep decline as the nearly 430 rigs deployed there were rapidly pulled from the basin as oil prices traded into negative territory.

Forward-market outlook

Over the balance of 2021, forwards markets are actually anticipating some weakening of basis prices in key end-user markets near the Permian.

In East Texas, the balance-2021 forward basis curve at Houston Ship Channel is priced at minus 5 cents/MMBtu. At El Paso San Juan, the bal-year curve is priced at 20 cents below the benchmark, S&P Global Platts' most recently published M2MS data shows.

With Permian Basin production continuing to flounder below year-ago levels, and more midstream capacity expansions from West Texas already in development, it's possible that basis markets in East Texas and the Southwest could be underpriced currently.