Permian producer negative gas prices to shift to positive results with Matterhorn

It’s been a tough stretch for natural gas revenues from the Permian so far in 2024. The Permian is a large, sedimentary, energy-producing region in western Texas and southeastern New Mexico, and it is a major source of production for both crude oil and natural gas. While the economics that drive new producer investments are driven by oil prices, there is significant associated natural gas that comes out of oil wells that needs to be dealt with. For crude oil production to continue to grow, gas infrastructure is paramount.  

When looking at west Texas gas prices in 2024, it is obvious that there has been a gas takeaway problem. The below chart shows spot pricing from Waha, a west Texas, Permian-based gas pricing hub, from April 1 - September 23. The chart also includes forward pricing that combines the current forward NYMEX and Waha basis pricing that producers could lock in from October 2024 – December 2025, also as of September 23.   

The left third of the chart is spot pricing from the Waha price point. From April 1 - September 23, there were 177 days of spot pricing for Waha. Of the 177, there were 105 (59%) days in which the spot price was negative, or below zero, and producers paid someone to take the gas, while the average price since April has averaged approximately -$0.85/MMBtu.  

This month, the Matterhorn Express Pipeline - a 2.5 B cf per day pipeline that sources gas from the Permian Waha hub and takes it close to Houston near the Katy gas hub - is expected to begin operations. Since September 13, spot prices have been above zero, averaging nearly $0.30/MMBtu. While not a boon for producers yet, the tide seems to be turning, with an outlet available and relief to an oversupplied gas market in west Texas to the growing industrial, power, and LNG demand willing to pay a premium along the Gulf Coast.  

While the price impact to producers at Waha is already starting to be seen in spot pricing, we can already see an even larger impact to forward prices at Waha by combining the current forward NYMEX with the forward basis price for Waha in the right half of the chart.  

Starting next month when Matterhorn flowing volumes are expected to increase, forward pricing at Waha has flipped from negative to positive, averaging $2.18 per MMBtu for the 15-month strip of October 2024 - December 2025 (highlighted blue oval on chart). While not a pot of gold at the end of the rainbow for producers, a positive price difference of over $3/MMBtu is a welcome sight based on the prices at Waha over the past six months.  

Additional crude and associated natural gas production growth is expected from the Permian in the future. For that growth to occur, even more infrastructure will be required, and there are at least six additional pipeline projects totaling 7 Bcf/day planned in Texas that will take the low-cost gas to other premium paying markets - three of which have already been approved by the state.