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Highlights

Waha trades above $1/MMBtu for first time since mid-March

2 Bcf/d Whistler Pipeline makes FID; new capacity by Q3 2021

Denver — Permian Basin gas prices have returned to positive territory in recent trading, propelled by rising summer gas demand and flagging in-basin production. This week's uptick in the cash market was accompanied by more good news for Permian producers Wednesday -- a positive final investment decision on the 2 Bcf/d Whistler Pipeline.

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The third major Permian Basin expansion project to reach FID, the soon-to-be-built pipeline now promises to keep future gas production there unconstrained through 2027, according to a forecast from S&P Global Platts Analytics.

On Thursday, cash prices at the Permian's Waha Hub were up more than 20 cents in early trading to a high at $1.09/MMBtu, later falling to a preliminary settlement price of 97 cents/MMBtu. At the nearby El Paso Permian location, prices were also up about 20 cents from Wednesday to a preliminary settlement at 91 cents/MMBtu, S&P Global Platts data showed.

Permian gas prices slid into negative territory in mid-May, where they had largely continued to trade until Monday.

Earlier this week, the arrival of more summer-like temperatures in Texas began boosting demand for gas-fired cooling in the state, offering some price support to the Lone Star State's producers.

Since Monday, power burn levels have averaged 5.8 Bcf/d, up sharply from a May monthly average at just 4.6 Bcf/d, data from Platts Analytics shows.

Whistler FID

A recent drop in Permian Basin gas production has offered further support to prices. On Thursday, output was estimated just below 7.7 Bcf/d, down from a recent six-week high at over 8.5 Bcf/d.

Wednesday an FID was announced on the 2 Bcf/d Whistler Pipeline by developers MPLX, WhiteWater Midstream and a joint venture of Stonepeak Infrastructure Partners and West Texas Gas Inc.

A decision to proceed with the project came after a sufficient amount of the pipeline's capacity was fully subscribed by producers under long-term, firm transportation contracts, the developers said.

The 475-mile, 42-inch-diameter pipeline will deliver gas from multiple upstream locations around the Waha Hub to the Agua Dulce area in South Texas. The project will also source gas directly from processing plants in the Midland Basin through a 50-mile, 30-inch-diameter pipeline lateral and a direct connection to the 1.4 Bcf/d Agua Blanca Pipeline, under joint-venture development by WhiteWater, MPLX and Targa.

Capacity outlook

The FID on Whistler Pipeline follows earlier announcements from Kinder Morgan to advance two of its major Permian Basin expansion projects.

In September, Kinder announced an FID on its 2.1 Bcf/d Permian Highway Pipeline. The decision came just nine months after it had received sufficient shipper interest to support its 2 Bcf/d Gulf Coast Express Pipeline. While another 8.25 Bcf/d in Permian expansion capacity has been proposed, none of that has yet reached FID.

A dramatic expansion in oil-focused drilling across the Permian has seen associated gas production there grow nearly twofold over the past three years, hitting a record high of 9.4 Bcf/d in March.

The sudden surge in production there has created growing pains for producers, driving an uptick in flaring and venting activity, even driving some producers to temporarily defer production.

Including local demand, which is capable of absorbing about 700 MMcf/d, Permian gas production becomes fully constrained at around 9.4 Bcf/d, according to Platts Analytics.

For many West Texas producers, the market outlook for Permian gas production remains extremely volatile through October, when Kinder's Gulf Coast Express Pipeline is scheduled to enter service.

-- J. Robinson, jrobinson@spglobal.com

-- Edited by Joe Fisher, newsdesk@spglobal.com