(Reuters) - Next-day natural gas prices for Tuesday at the Waha hub in the Permian basin in Texas tumbled almost 80 percent to their lowest on record because of limits on the amount of gas that can move out of the region by pipeline.
Prices at the Waha hub fell to an average of 25 cents per million British thermal units (mmBtu), according to SNL data available on the Refinitiv Eikon going back to 1991.
Traders said small amounts of fuel were even sold at negative prices as producers struggled to get rid of the gas.
That compares with an average of $2.16 per mmBtu so far this year, $2.71 in 2017 and a five-year (2013-2017) average of $3.11.
The Permian is the biggest oil-producing shale basin in the United States and since gas is associated with much of the oil comes out of the ground, it is also the nation’s second-biggest shale gas producing region, behind the Appalachian.
Permian drillers want the oil, which is much more valuable than gas. In some cases the lack of infrastructure to remove gas from the region has forced some producers to burn or flare off some of the gas they pull out of the ground.
The cause of the price collapse was “very likely driven, in our view by continued associated gas production growth poured into a region that won’t see new greenfield pipeline capacity for at least 10 months,” analysts at RBN Energy said in a report on Tuesday, noting “we are about to enter a period of complete exhaustion of Permian gas takeaway.”
RBN said that increase in associated gas production was due in part to the expansion of Plains All American Pipeline LP’s Sunrise oil pipeline, which enabled oil trapped in the Permian to flow to the Gulf Coast.
Several energy companies are building or developing new pipelines to enable more gas to flow out of the Permian region, 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 2019 and beyond for those projects to enter service.
As the number of rigs seeking oil in the Permian rose this year to the highest since 2015, the amount of oil and associated gas produced has increased to record highs, constraining the region’s existing gas and oil pipelines.
Those gas constraints have boosted the discount Waha trades at below the U.S. Henry Hub benchmark in Louisiana.
That spread rose to $4.03 per mmBtu for Tuesday, its widest since September 2005, according to SNL data.
That compares with an average discount of 90 cents so far in 2018, 27 cents in 2017 and a five-year (2013-2017) average of 14 cents.
Reporting by Scott DiSavino; Editing by Steve Orlofsky and Jonathan Oatis