Negative gas prices return to Permian Basin as overlapping maintenance looms

Spot natural gas prices in the Permian Basin traded into negative territory April 10 as the market braced for another wave of midstream capacity cuts prompted by spring maintenance on two critical intrastate gas pipelines.

In early trading, next-day supply at Waha changed hands at minus-33 cents/MMBtu with other nearby locations also seeing negative pricing, data from Platts and the Intercontinental Exchange showed.

The return of negative gas prices in West Texas comes ahead of scheduled maintenance on Kinder Morgan's 2 Bcf/d Gulf Coast Express Pipeline. From April 11-12, capacity on GCX will fall to just 1.2 Bcf/d amid planned work at the Rankin, Devils River, and Big Wells compressor stations. From April 13-14, flow restrictions will ease to just 1.6 Bcf/d, according to a critical notice from the pipeline operator.

The capacity cuts on GCX add to an already ongoing 530 MMcf/d flow restriction on Kinder Morgan's Permian Highway Pipeline. Restrictions on PHP are expected to roll off after April 11 when downstream maintenance is scheduled to end, allowing for the delivery of more eastbound supply from the Permian.

Production cuts

In late March, gas producers in the Permian Basin orchestrated a strategically timed production cut that came just ahead of the planned maintenance on GCX. On April 1, Permian gas production dropped by over 600 MMcf/d falling to 16.5 Bcf/d. Month to date, production has averaged just under 16.4 Bcf/d – down from an average 17.1 Bcf/d in March, data from S&P Global Commodity Insights shows.

With pipeline maintenance scheduled to end by mid-April, it's possible that gas production could quickly rebound back above 17 Bcf/d by early next week as Permian producers move to refill previously suspended pipeline capacity. Since early February, Permian gas production had been on an upward trajectory, climbing to an average 17.1 Bcf/d last month – just shy of a record-high average at nearly 17.2 Bcf/d in September 2022.

Considering recent upstream activity in the Permian, a quick rebound in production seems even more likely. As of late March, rig count in the Permian Basin was estimated at 360 – just several rigs short of a three-year high set earlier in the month, S&P Global data shows. In January and February, the average 436 wells drilled each month was also basin's most since first-quarter 2020, according to data from the US Energy Information Administration.

Spring weather

With shoulder season already well underway in Texas and neighboring gas markets, it's possible that weaker demand could keep downward pressure on Permian gas prices, slowing a production rebound.

Over the next two weeks, population-weighted temperatures in Texas and the Southeast are forecast to average a balmy 67.4 F and 65.9 F, respectively – pushing heating and cooling demand to seasonal lows. In Texas, demand is forecast to trend near seasonal lows over the next two weeks between 14.1-14.3 Bcf/d, with a similar seasonal low of around 27-28 Bcf/d expected across the Southeast.

In the forward gas market, traders are already bracing for some combination of weak demand and/or stronger production. At Waha, the balance-of-month gas contract settled most recently at just 35 cents/MMBtu with prices for May and June commanding just 54 cents and 60 cents, respectively, Platts M2MS forwards data shows.