Summer basis prices at the Permian's benchmark Waha Hub are trading at multiyear highs in early April amid lower year-on-year production and growing competition for West Texas gas.
For the upcoming peak-summer months of June, July and August, Waha is now priced at an average $2.67/MMBtu, or just 8 cents below the US benchmark Henry Hub, S&P Global Platts' most recently published M2MS forwards data shows.In recent summers, chronic oversupply and insufficient production-takeaway capacity have kept Permian gas prices under pressure. Last summer, Waha's cash market averaged just $1.27/MMBtu from June to August–equivalent to a more than 55-cent discount to the Henry Hub.
This summer, though, lower supply and expanded midstream capacity are fueling a more bullish outlook.
ProductionThrough early April, gas production from the Permian has averaged about 11.6 Bcf/d this year. That's down nearly 1.2 Bcf/d, or about 9%, from year-ago levels, S&P Global Platts Analytics data shows.
After reaching its peak at over 12.8 Bcf/d in March 2020, West Texas gas production fell sharply last summer amid a global fallout in commodity prices. It suffered another brief but steep decline in mid-February amid a historic wellhead production freeze-off in Texas and the Midcontinent.
Permian producers have since struggled to regain their momentum.
With an estimated 236 rigs currently operating in the basin, drilling activity now stands at just 60% over its year-ago level, data published by Enverus shows. According to a recent forecast from Platts Analytics, gas production in West Texas will likely see minimal upside during this summer's peak-demand months, with a return to previous, record-high levels unlikely prior to fourth-quarter 2021.
CompetitionLower production in the Permian, and higher in-basin gas prices there, have been further fueled by growing competition for its supply.
In January, the startup of Kinder Morgan's Permian Highway Pipeline opened a new eastbound corridor for Permian gas, igniting a Gulf Coast-vs.-West Coast competition for the basin's supply. While flows on the intrastate Permian Highway are not publicly reported or directly observable, a subsequent rise in West Texas gas prices–closer to prevailing levels seen in East Texas–would suggest that the 2.1 Bcf/d pipe is already moving significant additional volumes from West Texas to the Gulf Coast.
Permian Highway's competitive market impact is more directly observable in this year's westbound flow data. Year to date, gas transmission from the Permian to the Southwest has averaged just over 3.3 Bcf/d–down 500 MMcf/d, or about 13%, compared with year-ago levels, Platts Analytics data shows.
