COMMODITIES 2025: Matterhorn pipe is an outlet for Permian gas but regional capacity limits loom

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Following a run of negative prices for much of 2024, the West Texas natural gas market will enter 2025 with normalized prices tied to the startup of the 2.5 Bcf/d Matterhorn Express Pipeline. But as Permian Basin production continues to rise, with no further takeaway capacity slated to come online until mid-2026, market participants will be looking out for signs of egress hitting its limits later in the year.

Permian Basin natural gas production tends to rapidly grow into extra natural gas takeaway capacity, and Matterhorn is already filling up.

The pipeline, in service since September, is consistently flowing over half its capacity into interstate pipelines. Flows peaked at over 1.5 Bcf/d in early November, and averaged around 1.3 Bcf/d during Dec. 1-18, according to postings from those pipelines.

As an intrastate line, Matterhorn does not have the same reporting requirements as interstate lines, so more gas may be flowing onto other intrastate lines. The pipeline was "flowing 2 Bcf a day at this point," Devon Energy CFO Jeffrey Ritenour said in early November.

Production

Permian Basin associated gas production reached almost 20.7 Bcf/d in November 2024, around 1.9 Bcf/d higher year on year, data from S&P Global Commodity Insights showed. Production remained steady throughout the year, despite significantly negative prices in the summer.

"The Permian will grow into MXP's new capacity progressively through mid-summer 2025, enabling Permian output to rise 1.1 Bcf/d on an entry-to-exit basis in 2025," Commodity Insights analysts wrote in a Nov. 22 outlook.

However, tepid oil prices could hinder associated gas production growth next year. The NYMEX WTI crude oil futures 2025 strip has been trading below $70/b, which analysts expect will limit spending by oil-focused operators.

Spot Prices

Even with Matterhorn online since September, the Waha spot price has remained vulnerable to downward spikes in the fourth quarter. Cash prices were mostly negative in first-half November as maintenance on Gulf Coast Express and Permian Highway Pipeline reduced egress capacity, combined with ongoing issues at El Paso Natural Gas.

"Part of the problem is you've been seeing these pretty frequent maintenance or force majeure events out west of the basin," said Felix Clevenger, a natural gas analyst with Commodity Insights. "So if your constant outlets to Southern California are tight or bottlenecked and then you get a maintenance like Permian Highway or Gulf Coast Express cutting another Bcf per day, it can definitely impact Waha prices."

Some of those constraints on El Paso Natural Gas could ease with the return of the Flagstaff compressor station next year. "Repairs are ongoing with an anticipated return to service in early 2025," EPNG said in a Dec. 17 update on the station, which has been offline since September 2022.

Flagstaff issues reduced available capacity on EPNG's North Mainline by an average 600 MMcf/d in October, and 400 MMcf/d in November and December, according to EPNG maintenance schedules.

The Waha cash prices surged in December 2024 with PHP back to full capacity. It averaged $2.38/MMBtu for Dec. 1-19 flows, at a discount of just 64 cents/MMBtu to Henry Hub and 30 cents to Houston Ship Channel, according to data from Platts, part of S&P Global Commodity Insights.

The basis discount is "about as high as it can go," Clevenger said. "It has to maintain a transportation rate spread between Houston Ship Channel and Waha."

Forward prices

That bearish run in November suggests that negative prices remain possible in 202, at least during capacity reductions.

For now, the market is not pricing in a return to negative prices next year. The 2025 forward strip was priced above zero, but with basis discounts widening out significantly through the year. The Waha January discount to Henry Hub was 46 cents/MMBtu, but the October discount was $1.93/MMBtu, Platts M2MS data showed Dec. 17.

The Waha basis discount tightens to $1.12/MMBtu for December 2025, likely reflecting expectations for winter demand to support prices, but this remains much wider than the spot spreads in December 2024.

Beyond 2025

If Matterhorn fills quickly, producers will be looking forward to H2 2026, when significant egress capacity is due in service.

Kinder Morgan is targeting a "mid-2026" start date for its 570 MMcf/d Gulf Coast Express expansion. The greenfield Blackcomb Pipeline, which will have a capacity of up to 2.5 Bcf/d, targets an H2 2026 in-service date. And Energy Transfer recently reached FID on the Hugh Brinson Pipeline, a 1.5-2.2 Bcf/d project set for late 2026.