Negative Permian gas prices set record stretch as Matterhorn startup looms

Natural gas prices at the West Texas Waha hub opened in negative territory again Aug. 21, marking nearly a month of consecutively negative pricing there as producers eagerly await new, incremental production takeaway capacity expected in September upon startup of the 2.5 Bcf/d Matterhorn Express Pipeline.

After 26 days in the red, producers in the Permian Basin have now endured the longest stretch of negative gas prices dating back at least a decade. Since entering negative territory in late June, gas prices at Waha have averaged minus-$1.32/MMBtu. On Aug. 21, Waha was trading just above that level at minus-$1.17, data from Intercontinental Exchange and S&P Global Commodity Insights showed.

The extended stretch of negative prices in the Permian comes as gas production there continues to hover near record highs, making the local supply-demand balance especially sensitive to pipeline maintenance, which has limited outbound flow capacity for much of this summer.

Production, maintenance

In August, gas production in the Permian has averaged over 19.5 Bcf/d to trend at its highest monthly average on record, testing the limits of available production takeaway capacity. This summer, relatively strong WTI crude oil prices, which have averaged over $78/b on the NYMEX from June 1 to date, have made many West Texas operators willing to keep drilling – even in the current market environment.

On more than a handful of days this summer, some Permian producers have paid end-users of last resort as much as $3-$4/MMBtu to take surplus gas, which has been increasingly stranded in the local market.

Pipeline maintenance, especially on westbound El Paso Natural Gas, has added to the price pain for many producers. In August, El Paso's North Mainline has seen continuous daily maintenance restricting capacity by anywhere from 335 MMcf/d up to as much as 900 MMcf/d. Other locations on the pipeline have seen smaller, although potentially no-less-significant capacity restrictions throughout much of August, according to an updated maintenance calendar posted Aug. 16 to the pipeline's website.

Forwards prices

With no immediate end to negative gas prices in sight, many producers are turning their attention to the looming startup of Matterhorn Express Pipeline for relief – especially as summer demand begins to fade.

Earlier this month, executives at EnLink Midstream, which holds a 15% stake in the project, updated investors on the project's timeline. According to CFO Benjamin Lamb, Matterhorn Express will begin service in September – about two weeks behind schedule due to weather-related delays from Hurricane Beryl, he said on the company's quarterly conference call Aug. 7.

In the forward market, traders are already pricing in a material uplift for Permian gas prices by September when the startup of Matterhorn Express will give producers new running room to grow output. In recent trading, the Waha September 2024 gas contract has been pricing around minus-55 cents. Despite lower shoulder-season demand in October, the early autumn month is currently pricing outside negative territory at nearly 40 cents/MMBtu, data from Commodity Insights showed.