Houston — Recent commissioning activity on Kinder Morgan's Gulf Coast Express has seen gas deliveries to the pipeline begin ramping up this month, providing some long-awaited support for Permian Basin cash prices.

Flows from El Paso Natural Gas, which began August 8, have averaged about 220 MMcf/d over the past 12 days. Deliveries climbed to their highest level yet Sunday at 380 MMcf/d, S&P Global Platts Analytics data shows.

Since initial flows began, cash prices at Waha have averaged 86 cents/MMBtu - up sharply from the first week of August when the location averaged minus-4.5 cents/MMBtu.

On Monday, the West Texas hub was trading down nearly 40 cents from Friday to around 79 cents/MMBtu, preliminary settlement data from S&P Global Platts showed.

Prices at Waha have been notably higher since flows from El Paso to Gulf Coast Express began earlier this month. On August 15, Waha changed hands at $1.55/MMBtu which was the highest level the location has seen since trading at $2.36/MMBtu on March 15.

COMMISSIONING

On its second-quarter earnings call in late July, Kinder Morgan said that the company had begun buying gas supply for line-packing purposes on Gulf Coast Express.

The company's top executives also said that the project would enter full service about seven to 10 days ahead of a previously announced October 1 in-service date.

Startup of the 2 Bcf/d pipeline from the Permian Basin to Agua Dulce will give West Texas producers new access to both local demand and export markets along the state's Gulf Coast.

PRODUCTION

With incremental Permian gas supply now flowing to Gulf Coast Express, producers in West Texas already appear to be dialing up production in response.

Month to date, gas production in the Permian has averaged nearly 9.1 Bcf/d, which is the highest monthly average since March when output crested at a record high over 9.6 Bcf/d.

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

Prior to the startup of commissioning activity on Gulf Coast Express, though, even lower production of levels around 9 Bcf/d have typically been correlated with negative prices.

During the final two weeks of March, Permian gas production averaged over 9.2 Bcf/d and was accompanied by an average Waha cash price of minus-9 cents/MMBtu. In early April, prices briefly settled as low as minus-$5.79/MMBtu, S&P Global Platts data shows.

OUTLOOK

With the startup of Gulf Coast Express now just weeks away, the market outlook at Waha has improved significantly from earlier this summer.

For September, Waha forwards are currently priced at $1.18/MMBtu. Prices rise to an average $1.64/MMBtu in the fourth quarter and a reach a seasonal high at $1.90/MMBtu in January, Platts M2MS data shows.

-- Arsalan Syed, J. Robinson, Emmanuel Corral, newsdesk@spglobal.com

-- Edited by Jim Magill, newsdesk@spglobal.com