Permian Natural Gas Forward Prices Plummet; Other Markets Seeing Basis Improvement

Natural gas forward prices pushed modestly higher at the front of the curve during the March 14-20 trading period, particularly in the Northeast and Appalachia, data from NGI’s Forward Look show.

Meanwhile, spring contracts at hubs near the congested Permian Basin struggled under the weight of weak near-term fundamentals.

Fixed prices for April delivery at benchmark Henry Hub added 4.1 cents week/week to exit the period at $1.704/MMBtu. Modest front month fixed price gains were the norm for most of the Lower 48.

West Texas Woes

With the market awash in supply exiting an exceptionally mild winter, and amid reports of downstream pipeline constraints, associated gas from the oily Permian has struggled to find takers recently. Regional spot prices illustrate the lack of demand for Permian gas.

Waha, for instance, posted a negative daily spot price average throughout the March 14-20 trading period, according to NGI’s Daily Gas Price Index. NGI recorded spot trades as low as minus-$2.350 at the hub during the period.

Forward contracts felt the gravity of the negative spot market trades, and April fixed prices fell to near zero during the period, Forward Look data show.

Waha prices for April delivery tumbled to just 8.0 cents, a 27.2-cent discount week/week. El Paso Permian front month fixed prices dropped 24.9 cents to exit the period at 12.5 cents.

The South Central saw a net 21 Bcf injection into storage for the week ended March 15, leaving regional stockpiles at a 41.7% surplus to five-year average levels, according to U.S. Energy Information Administration (EIA) data.

Permian producers have seen a number of pipeline projects come online in the past few years to provide incremental takeaway capacity for their associated gas volumes, RBN Energy LLC’s Housley Carr said in a recent blog post.

However, “continued crude oil production growth through the early 2020s has once again put gas production and egress capacity on a knife’s edge,” Carr said. 

Recent expansions for the Permian Highway Pipeline and the Whistler Pipeline have “provided a little breathing room,” while the 2.5 Bcf/d Matterhorn Express Pipeline should “give a lot more when it comes online in the second half of this year,” according to Carr.

Nymex Futures Mixed

Front month Nymex futures experienced ups and downs during the March 14-20 trading period as the market contemplated some moderate late season cooling that still paled in comparison to lost demand from an exceptionally mild winter overall.

The market has found itself dealing with excess storage following “blowtorch February and March weather conditions,” EBW Analytics Group analyst Eli Rubin noted. 

In the coming weeks, the surplus versus the five-year average “may finally begin to peak and retreat to allow bulls to at least gain traction,” Rubin said. “Still, we caution that the pathway toward a more manageable storage surplus may be long and slow, with a prolonged period of weakness favored at the front of the Nymex forward curve to sustain power sector coal-to-gas switching and keep excess natural gas supply off the market.”

Appalachia Basis Strength

Recent Nymex futures pricing reflects “inventory congestion risks,” but “numerous basis markets have been on the mend of late,” analysts at Mobius Risk Group observed in a recent note.

Forward Look data bear out this trend of regional basis strengthening, particularly for Appalachian hubs.

Basis pricing at Eastern Gas South has rallied around 40-60 cents for April 2024 through October 2024 since the start of winter. October 2024 pricing has swung 63.3 cents higher winter-to-date, from minus-$1.659 to minus-$1.026.

Broadly, this parallels regional production trends. According to Bloomberg data, Appalachian dry gas production peaked above 36 Bcf/d in late 2023. Volumes had fallen off to around 33.2 Bcf/d as of recent estimates Thursday.

This comes as numerous regional operators have signaled plans to curtail output this year in response to weak prices.

SoCal Basis Premiums Fade

Meanwhile, unlike other markets, Western Lower 48 hubs have seen premiums that were “largely in place following last year’s inverse inventory dynamic” fade over the course of the winter, the Mobius analysts noted. They pointed in particular to pricing at the Southern California border.

According to Forward Look data, SoCal Border Avg. basis for April was trading at a 40.8-cent premium to Henry Hub at the start of November. April basis there has since flipped to a 3.4-cent discount versus the national benchmark.

As of the week ended March 15, Pacific region storage totaled 216 Bcf, 50% higher than the five-year average and 200% above year-earlier levels. Around this time a year ago, Pacific region storage sat at 72 Bcf, a steep deficit to the 163 Bcf 2018-2022 average, EIA data show.

“In addition to elevated inventory levels in the West…there is also the potential for stronger hydro electric generation this spring versus what was anticipated just a few months ago,” the Mobius analysts said.

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