Diamondback Energy’s latest letter to shareholders should be required reading for Canadian policymakers.
The Permian producer reported an average natural gas price of negative US$2.15 per Mcf in the second quarter, before hedging. During spring pipeline maintenance, prices at the Waha hub in West Texas fell to approximately negative US$10 per Mcf.
In other words, producers were paying customers to take their natural gas.
The problem was not a lack of demand for energy or an absence of valuable resources. It was a shortage of infrastructure capable of moving that resource to market.
Diamondback is responding by securing additional capacity on pipelines connecting the Permian Basin with the U.S. Gulf Coast, while pursuing local demand from power generation and large data centres. The company expects its long-haul takeaway capacity to more than double by the end of this year.
At the same time, a major Permian pipeline buildout is underway. The Gulf Coast Express expansion and the first phase of the Hugh Brinson pipeline have already entered service, while the 2.5 Bcf/d Blackcomb pipeline is expected to provide another major outlet for Permian gas. Together, these projects are adding billions of cubic feet per day of takeaway capacity and connecting Permian supply with growing LNG, power generation and industrial demand.
It is a familiar lesson for Western Canada.
Alberta and British Columbia possess enormous reserves of oil and natural gas, but the value of those resources depends on the ability to transport them to customers. When production grows faster than pipelines, storage, processing capacity and local demand, the result is not simply an inconvenience for producers. It is a collapse in the regional price.
Western Canada has experienced this before.
Before the Trans Mountain expansion entered service in May 2024, Western Canadian oil pipelines were operating at or near capacity. Producers regularly faced apportionment and wider discounts for Western Canadian Select.
Trans Mountain added badly needed breathing room. The expansion nearly tripled the system’s capacity to 890,000 barrels per day and increased total Western Canadian export pipeline capacity by approximately 13%. The WTI-WCS differential subsequently narrowed from an average of about US$18.70 per barrel in the months before completion to approximately US$12 between June 2024 and July 2025, according to the Canada Energy Regulator.
That improvement demonstrates the economic value of infrastructure more clearly than any political speech could.
But the additional capacity should not be mistaken for a permanent solution. Canadian oil production continues to grow, while the major export systems remain highly utilized. Trans Mountain averaged 82% utilization during the first 13 months following its ramp-up, with its committed capacity effectively full.
Canada has bought itself time. It has not eliminated the possibility of another pipeline bottleneck.
The risk may be even more immediate for natural gas.
Western Canadian marketable gas production averaged a record 19 Bcf/d in 2025. At the same time, the CER says the major pipelines carrying gas out of the basin continued to operate at almost full capacity at key locations. Alliance was consistently full during much of the winter, Westcoast operated at or above capacity during periods of strong demand, and utilization at Kingsgate occasionally exceeded 95%. Parts of the NGTL system are also carrying record volumes. (CER)
LNG Canada has created a major new source of demand and future LNG developments could provide additional outlets. Growing electricity needs, petrochemical investment and data centres could also consume more gas within Western Canada.
However, the Montney continues to demonstrate that it can add supply very quickly. If production growth again outruns pipeline expansions, LNG demand, storage and domestic consumption, AECO could experience increasingly severe discounts. Planned pipeline maintenance or an unexpected outage during a low-demand period could produce exactly the type of temporary pricing collapse Diamondback experienced at Waha.
Persistent negative pricing is not the most likely long-term outcome. Periodic episodes of extremely weak or negative natural gas prices during shoulder seasons, however, are entirely plausible if infrastructure does not keep pace.
Oil faces the same underlying risk, although Trans Mountain currently provides a larger cushion. As production fills that capacity, Canada could again become subject to on wider differentials, apportionment and more expensive crude-by-rail shipments to balance the market.
The consequences would extend well beyond oil and gas company shareholders.
Lower regional prices reduce producer cash flow, which means less drilling, fewer service jobs, lower capital investment and weaker activity throughout communities across Western Canada. They also reduce the value of every barrel and every gigajoule on which provincial royalties are calculated.
Alberta expects to receive more than $13 billion in non-renewable resource revenue in 2026-27, representing roughly 18% of provincial revenue. Those dollars flow into the same provincial treasury that funds hospitals, schools, teachers, nurses, highways and social programs.
When inadequate infrastructure causes Canadian resources to sell at unnecessary discounts, the lost value is shared by every Canadian who owns those resources.
Building pipelines, LNG facilities, storage, processing plants, petrochemical projects and gas-fired power generation is therefore not simply about helping energy companies. It is about protecting the value of publicly owned resources and strengthening the revenue base that supports public services.
Infrastructure takes many years to approve and construct. Waiting until every existing pipeline is full is already waiting too long.
West Texas is now scrambling to connect abundant supply with distant markets and local power demand after watching natural gas prices fall to extraordinary negative levels. Western Canada should take the warning seriously.
We have the resources. The challenge is ensuring that we always have somewhere valuable to send them.