(Reuters) - Natural gas forwards for 2021 at the Waha hub in the Permian basin in West Texas traded at their highest in years, up from below zero now, on expectations gas supplies from oil drilling will drop as low crude prices cause energy firms to cut rigs.
At the same time, demand for gas is expected to jump next year as the economy snaps back after governments loosen travel restrictions once the coronavirus spread slows.
Waha forwards <0#OTGBLFIX:> averaged $1.85 per million British thermal units for calendar 2021, which would be their highest for a year since 2018.
Next-day prices at Waha, however, were currently trading below zero.
Negative prices, which happened several times over the past year, occurred because energy firms were not able to build pipelines fast enough to keep up with growing gas output associated with record Permian shale oil production.
That forced some drillers to flare gas or pay others to take it rather than shut oil wells because they could make enough money selling crude and other liquids to cover their losses on gas.
But that was before oil futures tumbled over 50% since the start of the year as Saudi Arabia and Russia boosted supplies after failing to agree to cut output to deal with demand destruction from coronavirus.
In response to the price plunge, U.S. energy companies rapidly slashed spending on new drilling and cut the oil rig count to a three-year low.
IHS Markit said associated gas volumes could fall by 8 billion to 10 billion cubic feet per day (bcfd) by the end of 2021, noting associated gas accounts for about a third of the nation’s total 96-bcfd gas output.
Reporting by Scott DiSavino; Editing by Steve Orlofsky
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