Permian Basin’s spot gas prices are at their highest point in over 19 months, boosted by a slowdown in production and the West Texas Intermediate price plunge, S&P Global reported today.
As of November 3rd, cash prices for gas at the Waha Hub gained 50 cents up to $2.42 per Metric Million British Thermal Unit (MMBtu), while Permian gas production plunged below 10 Billion Cubic Feet per day (Bcf/d).
This market behavior has been ongoing for the past seven days, as spot gas prices at Waha averaged $2.30 MMBtu, and hit a 19-month record of $2.5 MMBTU, according to data reviewed by S&P Platts.
Increases began in October when maintenance work at El Paso Natural Gas ended. Then, cash markets at Waha and West Texas hubs kept rising from depressed balances. With colder weather arriving to the country after the hurricane and autumn seasons, heating demand is up.
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Gas prices boosted by weather and low drilling actibity
On top of that, gas production in the Permian Basin over the past few weeks averaged just 10 Bcf/d, almost 750 Mcf/d below September’s monthly average, and nearly 2.3 Bcf/d compared to the high summer period, according to S&P Platts Analytics.
Drilling activity also slowed down. From January to August, almost 365 rigs from West Texas were pulled out, hitting a low record at 127 rigs count. And, with no drilling activity, wells completion also drops.
In May, well completion averaged 133 per month, a sharp down compared to the average of 440 wells completed in the first quarter of 2020. In September, the standard was 155 per month, according to data by the Energy Information Administration.
This scenario is complete with the arrival of freezing temperatures all over the state of Texas. Between October 27 – 28, temperatures were about 30s and 40-degrees Fahrenheit, pushing the heating demand.
For analysts, this market landscape sets a floor for the Permian Basin gas prices and helps it to achieve further increases. With the added factor of the weather, Basin’s rally could be on a positive track for months to come.