February 5, 2019 / 4:23 PM / 7 months ago

For sale in Texas: natural gas at record low price

(Reuters) - Next-day natural gas prices for Tuesday at the Waha hub in the Permian basin in West Texas tumbled almost 90 percent to a record low as demand declined with moderating weather and pipeline constraints limited the amount of fuel that can leave the region.

Spot prices at the Waha hub collapsed to an average of just 21 cents per million British thermal units (mmBtu) for Tuesday.

That fell below the contract’s prior all-time low of 25 cents in November and compares with an average of $2.13/mmBtu so far this year, $2.10 in 2018 and a five-year (2014-2018) average of $2.80, according to data available on the Refinitiv Eikon going back to 1991.

Elsewhere in the region, next-day gas at the Henry Hub in Louisiana fell to $2.57/mmBtu for Tuesday, its lowest in almost a year as consumers turn off their heaters with temperatures in Houston rising into the 70s Fahrenheit (20s Celsius).

The Permian is the biggest oil-producing shale basin in the United States and since much of that oil comes out of the ground with gas, it is also the nation’s second-biggest shale gas producing region, behind Appalachia in Pennsylvania, West Virginia and Ohio.

With production of both oil and gas more than doubling to record highs over the past five years, the region’s pipeline infrastructure has not been able to keep up with the rapid growth in output.

That has caused the basin’s existing oil and gas pipes to become constrained and forced some producers to burn or flare off some of the gas associated with oil production. Drillers want the oil, which is much more valuable than gas.

Those gas constraints have boosted the discount Waha trades at below the U.S. Henry Hub benchmark.

That spread reached $2.36/mmBtu for Tuesday, its widest since December. That compares with an average discount of 93 cents so far this year, $1.06 in 2018 and a five-year (2014-2018) average of 34 cents.

Several new pipelines are being built or developed to enable more gas to flow out of the Permian, including Oneok Inc’s WesTex and Roadrunner projects, Kinder Morgan Inc’s Gulf Coast Express and Permian Highway projects and NAmerico Energy Holdings LLC’s Pecos Trail.

Drillers will, however, have to wait until late 2019 and beyond for those projects to enter service.

Reporting by Scott DiSavino; Editing by Steve Orlofsky

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