Permian Basin gas shippers look northbound as East Texas basis market falters

Widening basis discounts in the East Texas gas market are making the US Midcontinent an increasingly attractive destination for Permian Basin gas recently as shippers there begin seeking out a destination for growing West Texas supply.

In March, cash basis at Houston Ship Channel has averaged about 36 cents discount to the Henry Hub. At the nearby Katy Hub, prices have trending about 34 cents behind the US benchmark. At both locations basis prices are down more than 20 cents this month compared with year-ago levels, data from S&P Global Commodity Insights shows.

Weaker basis prices in the East Texas gas market this spring are likely due in no small part to rising utilization on the Permian Basin's eastbound intrastate pipeline corridor.

In July 2021, commercial startup of the 2 Bcf/d Whistler Pipeline was the latest expansion to Permian-to-Gulf Coast capacity. Including the earlier addition of Kinder Morgan's 2 Bcf/d Gulf Coast Express project in 2019 and its later 2.1 Bcf/d Permian Highway Pipeline in 2021, total eastbound capacity from the Permian Basin has grown by more than 6 Bcf/d over the past several years.

Gas transmission

While intrastate gas pipeline flows from the Permian Basin are not publicly reported, existing data appears to imply a steady rise in utilization of the eastbound pipelines over the past 12 months.

One indication are publicly reported interstate pipeline deliveries to Gulf Coast Express and Permian Highway. The recently commissioned 1.35 Bcf/d Double E Pipeline has been central to the recent rise in interstate deliveries to those pipelines. In November 2021, the in-basin expansion entered service targeting improved access for producers to the eastbound pipelines. In March, reported deliveries from Double E to Permian Highway edged up to an average 230 MMcf/d marking a nearly 80% increase from a December 2021 average of 130 MMcf/d, S&P Global data shows.

Another indication of the recent increase eastbound gas transmissions comes from modeled data. In March, implied eastbound flows from the Permian Basin have averaged about 8.1 Bcf/d, which compares with implied flows closer to 7.1 Bcf/d in March 2021, S&P Global analytics data shows.

Midcon gas market

As the Permian's eastbound corridor continues to fill, weighing on basis prices along the Texas Gulf, shippers in the West Texas market have begun looking toward the Midcontinent as a potential backstop for growing Permian Basin supply.

At NGPL Midcontinent and other nearby hubs, cash prices have offered attractive spreads from Waha in March, despite relatively weaker basis levels in the Midcontinent as compared to the Texas Gulf Coast.

In 2022, northbound flows from the Permian have been on the rise, climbing to about 860 MMcf/d this month, compared with an average 770 MMcf/d in January. In a year-on-year comparison, flows are up even more sharply from an average 600 MMcf/d in March 2021, S&P Global data shows.