Coastal demand for Permian gas trims northbound flows from West Texas

Highlights

Waha averages $3.43 in July, up 50 cents on month

NGPL Midcon hub trades at discount to West Texas

Northbound Permian flows fall below 200 MMcf/d

Rising demand for Permian gas this summer is bidding up cash prices at the Waha hub in West Texas recently, reshuffling the basin’s supply away from historically premium markets in the US Midcontinent.

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In July, spot supply at Waha has traded at average $3.43/MMBtu – up about 50 cents from June and more than double last summer’s H1 July average of just $1.31/MMBtu, S&P Global Platts data shows.

The cash-price rally at Waha this month has mirrored momentum in key destination markets for Permian gas, including the Gulf Coast and the Western US, where record exports and intense summer heat have amplified demand for West Texas supply this month.

On the Gulf Coast, healthy netbacks to export markets in Northeast Asia and Europe have kept LNG feedgas demand at full throttle this summer. At the region’s four LNG export terminals – Sabine Pass, Cameron, Freeport and Corpus Christ – gas deliveries have trended near record highs this month averaging about 9.9 Bcf/d, according to data compiled by S&P Global Platts Analytics.

In the Western US, a series of heatwaves have fueled strong demand for incremental supply in California and neighboring states. Across the desert Southwest, including California and Nevada, gas-fired power burn has averaged a record 5.1 Bcf/d this month – the highest ever for H1 July.

In the combined Midcontinent-Midwest local market – also historically a destination for Permian supply – cooler temperatures in July have seen gas demand ease about 11% on the month to an average 12.2 Bcf/d. Compared with year-ago levels, total gas demand in July is also down about 12%, analytics data shows.

Gas transmission

Shifting demand for Permian supply has reshuffled gas transmissions from West Texas this month.

In July, volumes moving northbound to the Midcontinent and the Midwest have averaged less than 200 MMcf/d. In the second quarter, northbound flows from the Permian averaged nearly 450 MMcf/d. In H1 July 2020, northbound capacity to midcontinent region was nearly maxed out with flows averaging over 1 Bcf/d, Platts Analytics data shows.

The precipitous drop in northbound transmission from the Permian comes as comparatively weak demand in the US midcontinent has left hub prices there trailing behind the broader US market.

At NGPL Midcontinent, a long-standing price premium to the West Texas market has eroded in July. Month to date, cash prices at the Midcontinent benchmark have averaged just $3.41/MMBtu – a 2 cent discount to Waha. In the second quarter, NGPL maintained a modest 6 cent premium to Waha. In H1 July 2020, its premium averaged nearly 25 cents, S&P Global Platts data shows.

This month’s drop in northbound flows from the Permian has fueled a rise in both eastbound and westbound transmissions from West Texas. Month to date, volumes moving east to the Gulf Coast are up by an implied 330 MMcf/d; volumes moving west have seen a smaller gain on the month of about 50 MMcf/d, analytics data shows.

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