In West Texas, the natural gas market has hit an unusual low, with prices turning negative more frequently. As of late July, natural gas prices at the Waha Hub have dipped below zero on 57 trading days this year, according to the New York Times. This marks 37% of the trading days for the year up to that point and is over six times the number of negative days recorded in 2023, based on data from S&P Global Commodity Insights.
This year has seen a record number of negative prices at Waha, with the price hitting -$0.845 per million British thermal units (MMBtu) by July’s end and plunging as low as -$4.595 in May, Reuters reports. In comparison, Waha prices were negative on only nine days in 2023, three days in 2022, and none in 2021.
Even during the global oil price crash in 2020 caused by the COVID-19 pandemic, Waha prices only fell into negative territory on nine days, according to S&P Global Commodity Insights.
Despite these record lows at Waha, the benchmark U.S. natural gas price at the Henry Hub in Louisiana has not dropped into negative values. Meanwhile, in Europe, natural gas prices surged to new highs last week following a Ukrainian military advance and the capture of a key gas transit hub. U.S. retail customers are not paying for the privilege of burning natural gas, but natural gas-fired power plants in West Texas, such as those operated by Xcel Energy, have been compensated to accept excess supply.
The issue stems from the region’s proximity to the Permian Basin, a major hub of U.S. shale oil production. As oil production reaches record levels, excess natural gas is also produced, but it exceeds the capacity to transport it to high-demand areas.
This year’s negative pricing episodes were exacerbated by supply bottlenecks, including a pipeline segment shutdown in April due to a fire. In response, energy companies have begun scaling back gas production, and new pipeline projects are underway to better balance supply and demand, facilitating the transport of natural gas to export facilities on the Gulf Coast.
Additionally, extreme summer heat has increased electricity demand, thereby raising the need for natural gas. However, the surplus supply has kept prices from rising. S&P Global noted on Monday that despite record-high gas consumption due to heat in the western U.S., high storage levels are keeping prices stable, even in the volatile Southern California market.