Publication date:
August 11, 2024
Natural gas prices hit record negative levels in West Texas
Natural gas prices at the Waha Hub in West Texas have been negative a record number of times so far this year due to oversupply issues.
Energy Markets
Natural gas prices in West Texas have reached unprecedented negative levels, with the closing price at the Waha Hub near the Permian Basin being negative for 57 trading days through the end of July 2024. This represents 37% of trading days during that period and over six times the number of negative days seen in all of 2023.
The situation is primarily driven by the booming U.S. shale oil production in the Permian Basin, which also produces large amounts of associated natural gas. The region is facing infrastructure constraints in transporting this excess gas to areas of higher demand, leading to a localized oversupply.
While the U.S. benchmark Henry Hub price has not gone negative, and retail customers are not being paid to consume gas, some power plant operators in West Texas have been paid to take excess supply. This unusual pricing dynamic highlights the regional nature of natural gas markets and the impact of production growth outpacing infrastructure development.
The frequency of negative prices at Waha has far surpassed previous years, including 2020 when the COVID-19 pandemic disrupted global energy markets. Energy companies have begun signaling intentions to curb gas production in response to the weak pricing environment.
Looking ahead, plans for additional pipeline capacity should help alleviate the supply-demand imbalance in West Texas by improving the ability to transport gas to export hubs along the Gulf Coast. However, the ongoing growth in U.S. oil and associated gas production may continue to challenge regional gas prices in the near term.
This situation underscores the complexities of the U.S. energy landscape, where localized oversupply can coexist with high demand in other regions, and highlights the critical role of infrastructure in balancing energy markets.
The situation is primarily driven by the booming U.S. shale oil production in the Permian Basin, which also produces large amounts of associated natural gas. The region is facing infrastructure constraints in transporting this excess gas to areas of higher demand, leading to a localized oversupply.
While the U.S. benchmark Henry Hub price has not gone negative, and retail customers are not being paid to consume gas, some power plant operators in West Texas have been paid to take excess supply. This unusual pricing dynamic highlights the regional nature of natural gas markets and the impact of production growth outpacing infrastructure development.
The frequency of negative prices at Waha has far surpassed previous years, including 2020 when the COVID-19 pandemic disrupted global energy markets. Energy companies have begun signaling intentions to curb gas production in response to the weak pricing environment.
Looking ahead, plans for additional pipeline capacity should help alleviate the supply-demand imbalance in West Texas by improving the ability to transport gas to export hubs along the Gulf Coast. However, the ongoing growth in U.S. oil and associated gas production may continue to challenge regional gas prices in the near term.
This situation underscores the complexities of the U.S. energy landscape, where localized oversupply can coexist with high demand in other regions, and highlights the critical role of infrastructure in balancing energy markets.
