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Waha Moves: Some Midstreamers Win, Others Lose

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The Daley Note: October 3, 2022

As we wrap up trading for 3Q22, it’s been a volatile ride for natural gas thus far. The benchmark Henry Hub price has covered a lot of ground, trading as low as ~$5.50/MMBtu and as high as $9.65. And the CME Group’s NGVL Index is priced accordingly, with 30-day forward implied volatility remaining over 100% since Sept. 19.

Basis has also seen some spectacular moves. The Waha hub, the primary price point for Permian supply, traded as much as $5 under Henry Hub last Tuesday (Sept. 27) after starting the month only $1 back.Capture10.3

While the volatility may be unsettling, traders and gas marketing arms of midstream companies welcome it with open arms. Based on East Daley’s coverage, we anticipate a net positive effect to cash flows for Enterprise Products Partners (EPD), Energy Transfer (ET) and DCP Midstream (DCP), all of which have exposure to widening Permian spreads via their intrastate pipeline and marketing businesses.

However, each company will experience differing levels of exposure due to hedges, secured marketing capacity on their pipeline assets, and percent-of-proceeds (POP) contract exposure, which offsets upside due to commodity exposure to weaker basin price points (e.g. Waha).

Permian G&P systems with POP contracts and no marketing exposure are likely to see a net negative change to their cash flows as gas prices weaken in the basin. These asset operators include Crestwood Equity (CEQP) and Western Midstream (WES).

For an updated look at these companies as well as the rest of East Daley’s coverage list, be on the lookout for our 3Q22 model updates released early next week – AJ O’Donnell Tickers: CEQP, DCP, EPD, ET, WES.


Webinar: Dissecting U.S. Natural Gas Production
Join us at 12 p.m. ET on Wednesday, October 12 for a webinar discussion of U.S. natural gas supply and demand. In this 30-minute webinar, East Daley analysts will go behind the curtain and share our unique production methodology. Click here to register and for more information. For those interested in a deeper dive into natural gas market dynamics, we published an updated monthly Macro U.S. Supply & Demand Forecast Report and Dataset this week (Sept. 26). Please contact Zack Van Everen to request a copy.

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North American Natural Gas Prices

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The Daley Note
Subscribe to The Daley Note (TDN) for midstream insights delivered daily to your inbox. The Daley Note covers news, commodity prices, security prices and EDA research likely to affect markets in the short term.

 

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