The value of natural gas at the Waha Hub in West Texas turned negative for Friday, marking the third time daily prices in the top U.S. shale basin have closed below zero over the past month.
Both power and gas prices have traded at negative levels in spot markets in Texas, California and Arizona in recent weeks due to low demand, ample hydro and other renewable power supplies, and maintenance on gas pipelines.
Next-day gas at the Waha hub fell to negative 22 cents per million British thermal units (mmBtu) for Friday, according to pricing data from SNL Energy on the LSEG terminal.
Negative prices signal there is too much gas trapped in a region due to low demand, pipeline constraints or a combination of both. Producers can either reduce output or pay someone to take their gas.
Producers in the Permian Basin of West Texas and New Mexico are generally seeking oil, which is much more valuable than gas. The gas produced alongside that oil is called associated gas.
U.S. oil futures on the New York Mercantile Exchange soared to a five-month high of around $87 per barrel this week, allowing drillers to keep making money even when gas prices are negative.
Gas prices in the Permian have further been pressured by pipeline maintenance, that typically takes place in the spring and autumn when demand for gas for heating and cooling is low.
Kinder Morgan has been conducting work on its El Paso Natural Gas pipeline system for some time.
A brief outage on the company’s Permian Highway Pipeline in March sent cash prices at Waha below zero for the first time since late October, RBN Energy analyst Lindsay Schneider said in a blog.
The El Paso system moves gas westward from the Permian shale toward Arizona and California, while Permian Highway moves gas eastward from the Permian toward the Gulf Coast.
Waha prices were also likely hit in March by a reduction in flows on WhiteWater and MPLX’s Whistler pipeline, which transports gas from the Permian to the Gulf Coast, Schneider and energy traders said.
Waha prices could remain depressed for weeks.
Kinder Morgan told customers of its Gulf Coast Express pipeline, which also moves gas from the Permian to the Gulf Coast, that it planned to reduce capacity to overhaul some compressors from April 9-May 2 and again from May 14-21.
(Reporting by Scott DiSavino; Editing by Kirsten Donovan)