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Waha Pain is Ethane’s Gain as Gas Goes Negative

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Natural gas prices have been hammered recently in the Permian Basin, routinely trading below zero since March as pipelines conduct seasonal maintenance. East Daley expects the volatility in gas to spill into NGL markets as a new source of ethane supply.

Gas traded at the Waha hub in West Texas has traded below zero most days since March 11 as strong production growth collides with springtime pipe maintenance. Prices fell to a low of -$3.54/MMBtu on April 15, or nearly $5 behind the Henry Hub. Producers without pipe capacity from the Permian have been paying other shippers to take their gas, absorbing the cost to maintain crude oil production.

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Kinder Morgan’s (KMI) El Paso Natural Gas system has been conducting work on its North Mainline since the start of March, taking capacity offline out of the Delaware Basin. Other pipelines, including KMI’s Gulf Coast Express Pipeline (GCX), are also performing maintenance; at their peak, the El Paso and GCX outages removed ~1.6 Bcf/d of capacity, leading to severe pressure on West Texas prices (see figure).

In East Daley Analytics’ monthly updates to the NGL Network Model, we have raised the outlook for NGL production out of the Permian because of low gas prices. The frac spread has widened to Mont Belvieu ethane (C2) as ethane prices have held up better, increasing the incentive to extract.

The figure compares EDA’s February and March forecasts for Permian NGL production in the NGL Network Model. In the February ‘24 forecast, NGL production from April to YE24 averaged about 3,079 Mb/d for the Permian; we accounted for slower growth, especially after the mid-January winter storm and until the Matterhorn gas pipeline comes online in 3Q24.

For the March ’24 NGL forecast, EDA increased the production outlook considering the drop in Permian gas prices. We now expect total NGL production from the Permian Basin to average 3,103 Mb/d from April to YE24, about +23 Mb/d vs last month’s forecast.

A higher frac spread between Mont Belvieu C2 and Waha gas prices has historically incentivized more ethane recovery. Hence, we have also increased ethane recovery in the Permian to average 1,260 Mb/d from April to YE24 in our March forecast (+17 Mb/d vs the February ’24 forecast of 1,244 Mb/d). EDA’s updated NGL volumes outlook by PADD and basin can be found in our latest Purity Product Forecast. – James Taylor and Christina Adjiman Tickers: KMI.


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