Waha narrows its spread to Henry Hub as West Texas gas supply tightens

Denver — Cash basis at Waha is trading near historic highs this month as production weakness in the Permian Basin and strong demand from neighboring markets tighten the supply balance in West Texas.

Month to date, Waha's discount to Henry Hub has averaged just 18 cents. On April 21, the West Texas hub was trading near $2.50/MMBtu, narrowing its spread to the US benchmark to 15 cents, data from S&P Global Platts and the Intercontinental Exchange showed.

After hitting record-high price premiums during the February production freeze, Waha's cash market quickly returned to discounted territory in March amid milder weather and weak demand.

Over the past two weeks, though, cash basis there has rebounded amid a sustained post freeze-off decline in Permian gas production and an uptick in demand from Gulf Coast and West Coast markets.

Production

Month to date, output from West Texas has averaged about 11.7 Bcf/d with late April estimates now trending closer to 11.6 Bcf/d. In the 30 days prior to this winter's historic freeze, Permian production had averaged nearly 12 Bcf/d, data compiled by S&P Global Platts Analytics shows.

Recent weakness comes despite a rapid post-freeze production recovery and a steady increase in drilling activity.

After tumbling to just 8.4 Bcf/d in February, Permian production rebounded within a matter of days to over 11.7 Bcf/d, or about 98% of its pre freeze-off level. In the eight weeks since, though, output has waned despite continued rig additions in the Permian.

In the week ended April 14, rig count West Texas was estimated at 236, up from just 205 rigs in mid-February, recent data published by Enverus shows.

Demand

As Permian production continues to lag, surprisingly strong shoulder season demand along the Gulf Coast has recently pushed East Texas gas prices into the upper-$2s/MMBtu, likely attracting more Permian supply eastbound.

In April, industrial demand in Texas has averaged over 5.5 Bcf/d – well above previous spring season levels and just below this winter's records highs, Platts Analytics data shows.

With Texas LNG feedgas demand at a record high 4.35 Bcf/d this month, total Texas gas demand has been propelled to its highest spring season level ever at an estimated 15.1 Bcf/d in April.

On the West Coast, meanwhile, stronger competition from the Gulf Coast for Permian supply has buoyed Southern California gas prices recently. In April, cash basis at the SoCal Gas city-gate price has averaged over 80 cents – up 25 cents from March and nearly 90 cents higher compared with its corresponding year-ago average.

In April, westbound flows from the Permian are up on the month, averaging about 3.5 Bcf/d, and are now roughly at par with the year-ago average after underperforming 2020 levels since January.