Oil and gas producers in the Permian Basin are grappling with a severe decline in gas prices, but their actions to address the issue have been limited. While oil remains the primary source of revenue, leading operators to focus on oil extraction and the resultant natural gas, gas prices at the Waha Hub have suffered significantly in 2024. The challenge stems from the relentless growth in gas production, which strains the available transportation capacity.
As production increases, Permian producers find themselves continually needing to expand takeaway capacity. The existing infrastructure is struggling to keep up, necessitating new pipelines or expansions to handle the growing output. The chart below shows historical Waha basis prices and the forward curve, offering insight into past pricing trends.
A more detailed view of this situation can be seen in the seasonal strips chart, which illustrates how forward pricing for Waha has declined. This reflects market expectations of ongoing transportation challenges despite the addition of new pipelines. Since the beginning of 2024, forward prices have trended lower, indicating persistent egress issues.
In the short term, real-time pricing data reveals a troubling trend. Waha gas prices have frequently dropped into negative territory for both the prompt-month and cash markets. As of now, Waha spot prices have been negative on 109 out of 235 days in 2024, representing a staggering 47% of the time.
The crux of the issue is the mismatch between takeaway capacity and gas supply. Currently, the Permian’s production is exceeding the daily available capacity. However, relief is on the horizon with the upcoming 2.5 Bcf/d Matterhorn pipeline, which is expected to ease some of the current strain. This large new pipeline will help alleviate the severe weakness at Waha. Opinions vary on how quickly the Matterhorn pipeline will reach its full capacity, with some expecting it to be filled by next spring. This pipeline may reroute existing supplies rather than accommodating entirely new gas, potentially affecting the flow from less preferred routes, such as from West Texas to the Midcontinent.
Despite this anticipated relief, the forward curve for Waha gas prices suggests that weakness may persist. The forward prices for Calendar Year 2025 and Calendar Year 2026 remain low, with significant discounts. While a weak Cal 2026 is expected due to the next major pipeline, WhiteWater’s Blackcomb, not being operational until late 2026, the similar discount for Cal 2025 raises concerns. This could be due to ongoing 2024 weakness affecting future prices or market expectations of slower improvement in egress capacity.
Overall, the forward curve indicates that Waha gas prices are likely to remain volatile and weak, reflecting the ongoing struggle to balance production growth with the development of necessary infrastructure in the Permian Basin.