Permian producers curb output as Waha gas prices fall

Mella McEwen  mrt.com

Negative natural gas prices at the Waha hub have prompted some Permian Basin oil and natural gas producers to curtail production or shut in wells to limit exposure to low prices.

Analysts with East Daley Analytics say those curtailments will defer oil, natural gas and natural gas liquids production that will likely return later in the year.

“As Waha basis continues to improve, producers will get more benefit from their associated gas production. Constraint relief, in the form of expansion, allows Waha basis to improve. So overall, this is a good thing for producers. You might be sacrificing a little bit now, but on the prospect of better returns later,” Jack Weixel with East Daley told the Reporter-Telegram by email.

Waha spot prices consistently traded below zero from February through early June, reaching a low of minus $9.55 per million British thermal units in mid-April as natural gas production exceeded pipeline takeaway capacity from the Permian Basin. Prices have improved following the start of a 570 million cubic feet per day expansion on the Gulf Coast Express Pipeline, though prices remain well below other Gulf Coast hubs. Waha spot prices averaged about $1.22 per MMBtu in the second half of June, the highest price since late January.

In their first-quarter earnings updates, multiple producers and midstream companies acknowledged curtailments or well shut-ins in the Permian, with low Waha prices as the driving factor. Based on company commentary, the disruptions appear to mainly affect operations in more remote areas of the Delaware Basin:

• Targa Resources noted “periodic producer shut-ins from weak Waha gas prices.”
• Kinetik estimated well curtailments on its Delaware gathering and processing systems will average 220 million cubic feet per day in 2026, up from its previous forecast of 100 million cubic feet per day.
• “Despite higher crude oil prices since mid-March, we are still witnessing certain customers curtail throughput in the Delaware Basin due to stubbornly low and sometimes negative Waha natural gas pricing,” Western Midstream said.
• Producer APA acknowledged it curtailed some gas volumes “due to weak Waha pricing.”

Devon Energy said it was “pulling back” production from its Permian wells with the highest gas-to-oil ratios and instead will concentrate drilling on its oiliest acreage.

East Daley analysts noted not all Permian operators are exposed to low in-basin gas prices. Those with firm transportation on egress pipelines or prior sales agreements with marketers or midstream companies can sell their gas at prices closer to $2.50 per MMBtu outside the Permian.

Others may opt to flare at the wellhead to continue lifting crude oil, assuming they can obtain the necessary permits from state or federal regulators. East Daley Analytics estimates basinwide flaring averaged 1.7 billion cubic feet per day in the first half of 2026 because of the pipeline bottleneck. Operators are expected to convert those volumes to marketable gas once new pipeline projects start later this year, reducing flaring to zero by November.

“However, if E&Ps are curtailing wells — or shuttering them outright — the calculus changes on hydrocarbon supply. Shut-ins mean some potential crude oil production is not flowing. Reservoir pressure will also remain strong behind shut-in wells, so initial production rates will be robust once operators bring them online,” the analysts wrote.

Several gas pipeline projects are expected to begin service later this year and relieve pressure on Waha prices. After Kinder Morgan’s Gulf Coast Express expansion, WhiteWater’s Blackcomb Pipeline is due to come online in the second half of 2026 and ramp up to its full capacity of 2.5 Bcf per day by year-end. Phase 1 of Energy Transfer’s Hugh Brinson Pipeline, with capacity of 1.5 Bcf per day, is expected to enter service in the fourth quarter, followed by Phase 2, with capacity of 700 million cubic feet per day, in the first quarter of 2027. In total, the three projects could add about 4.5 Bcf per day of natural gas takeaway capacity by the end of 2026.

"The timing on these new pipelines is critical to determining how long the pain from depressed Waha prices will endure," the analysts wrote.

For example, Energy Transfer indicated on its first-quarter earnings call construction of Hugh Brinson is running ahead of schedule and said the pipeline could potentially begin delivering volumes as early as the third quarter. East Daley analysts estimate Hugh Brinson will begin operations in September, followed by Blackcomb in October.

Analysts project Permian residue gas production will grow by 1.4 Bcf per day, reaching 23.1 Bcf per day in December as these pipeline expansions relieve egress constraints.

“However, if well curtailments and shut-ins are prevalent, there is likely upside to our supply forecast in the fourth quarter. Oil and NGL production will also be stronger if operators en masse start flowing previously drilled wells,” the analysts concluded.