Get your natural gas in Texas for a dime, prices fall to record low

 (Reuters) - Next-day natural gas prices for Wednesday at the Waha hub in West Texas plunged to a record low due to an equipment failure in New Mexico that stranded gas in the Permian basin.

Spot prices at the Waha hub collapsed to an average of just 12 cents per million British thermal units (mmBtu) for Wednesday.

That fell below the contract’s prior all-time low of 21 cents in February and compares with an average of $1.72/mmBtu so far this year, $2.10 in 2018 and a five-year (2014-2018) average of $2.80, according to data available on the Refinitiv Eikon going back to 1991.

The equipment failure was on El Paso Natural Gas Pipeline Co LLC’s Lordsburg and Florida compressor stations. That failure, which caused El Paso to declare a force majeure, cut the operational capacity through the stations by about 0.2 billion cubic feet per day to around 0.4 bcfd starting on Tuesday.

El Paso, which is a unit of Kinder Morgan Inc, said the reduction will remain in effect until further notice.

The Permian is the biggest oil-producing shale basin in the United States and since much of that oil comes out of the ground with gas, it is also the nation’s second-biggest shale gas producing region, behind Appalachia in Pennsylvania, West Virginia and Ohio.

With production of both oil and gas more than doubling to record highs over the past five years, the pipeline infrastructure in the Permian has not been able to keep up with the rapid growth in output.

That has caused the basin’s existing oil and gas pipes to become constrained and forced some producers to burn or flare off some of the gas associated with oil production.

Those gas constraints have trapped gas in the Permian and depressed Waha prices, boosting the discount Waha trades at below the U.S. Henry Hub benchmark in Louisiana.

That spread reached $2.79/mmBtu for Wednesday, its widest since December. That compares with an average discount of $1.21 so far this year, $1.06 in 2018 and a five-year (2014-2018) average of 34 cents.

Several new pipelines are being built or developed to enable more gas to flow out of the Permian, including Oneok Inc’s WesTex and Roadrunner projects, Kinder Morgan’s Gulf Coast Express and Permian Highway projects and NAmerico Energy Holdings’ Pecos Trail.

Drillers will, however, have to wait until late 2019 and beyond for those projects to enter service.

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Thanks, HY.  Yeah, I've read a couple of Huff N Puff articles.  EOG seems to be the only company playing around with it and it has not yet been proven economic.  Even if it does turn out beneficial, sourcing sufficient CO2 may be an issue by location.

Unless I am grossly mistaken, EOG's EOR project in Gonzales County (Sneed lease) is based on injecting natural gas to literally re-energize the reservoir so as to then produce more of the liquid hydrocarbons that are trapped in the reservoir. They are having some decent success based on the available data.

This same concept was tested in the lab by the Tx Tech engineering department using Eagle Ford reservoir parameters - my memory tells me that up to 20% additional recovery was noted in this work.

20% additional recovery is huge.  Can that be replicated in other fields/formations?

Possibly - it all depends on the reservoir and how well it can "take" gas injection.

I would figure that the big factors here are reservoir permeability as well as the actually O/G system in place (e.g. volatile oil vs black oil system).

Plus having a good supply of gas that can be used for injection (and a pipeline / gathering / injection system in place to effectively more the gas). EOG has this in the Eagle Ford trend.

Gas supply should be no problem as there is more supply than takeaway capacity.  The permeability part sounds limiting.

I would also assume that one would want to inject residue gas that has already been stripped and processed for NGL's. Putting the least expensive gas into the ground is probably one of the objectives of any such effort.

Here is the SPE paper that HY noted above / This is different from the work that I noted a few days ago (i.e. EOG injecting gas to re-energize the reservoir). This is a CO2 injection study done by Schlumberger.

Enjoy the reading!!!

Attachments:

Energy - Exploration & Production


Quarterly Update: Adjusting Commodity Price Forecasts and Estimates

At the same time, Q1 Henry Hub spot natural gas prices averaged ~$3.14/MMBtu (vs. our $2.85/MMBtu estimate). Thus, we are adjusting our 2019 Henry Hub bid-week natural gas price forecast to $2.85/MMBtu (Q1A- $3.14/MMBtu, Q2- $2.70/MMBtu, Q3- $2.70/MMBtu and Q4- $2.85/MMBtu) from $2.80/MMBtu (Q1- $2.85/MMBtu, Q2- $2.75/MMBtu, Q3- $2.75/MMBtu and Q4- $2.85/MMBtu).

We are maintaining our long-term (2020 and beyond) Henry Hub natural gas price forecast of $2.75/MMBtu as we believe continued production increases (underscored by new pipelines from the Marcellus Shale and associated natural gas production from liquids shale plays, especially the Permian Basin), will more than offset the projected increase in demand (increased use in natural gas for electric power generation, the exporting of LNG and increased exports to Mexico).

The EIA estimates that domestic (Lower 48 states) natural gas production will average 96.7 Bcf/d in 2019 and 98.3 Bcf/d in 2020 compared with 88.7 Bcf/d in 2018, 79.1 Bcf/d in 2017 and 76.9 Bcf/d in 2016, while net exports are expected to increase to 5.6 Bcf/d in 2019 and 8.2 Bcf/d in 2020 compared with 1.9 Bcf/d in 2018, 0.4 Bcf/d in 2017 and net imports of 1.8 Bcf/d in 2016.

The EIA forecasts total domestic natural gas consumption will average 83.6 Bcf/d in 2019 and 83.7 Bcf/d in 2020 compared with 82.1 Bcf/d in 2018, 74.3 Bcf/d in 2017 and 75.1 Bcf/d in 2016.

According to EIA’s Weekly Natural Gas Storage Report, domestic natural gas inventories are currently at 1,107 Bcf, which is 285 Bcf below a year-ago and 551 Bcf below the 5-year average.

They can't give it away: Texas natural gas at all-time negative lows

Scott DiSavino  reuters.com

 (Reuters) - Next-day natural gas prices for Wednesday at the Waha hub in West Texas plunged to record negative levels - meaning some drillers are paying those with spare pipeline capacity to take the unwanted gas and are getting nothing for it.

The drop in prices has been caused by weak demand and recent equipment problems on a key pipeline in New Mexico, analysts said. But pipeline constraints in the Permian basin in West Texas have squeezed gas prices there for some time.

The Permian is the nation’s largest oil field, but it also produces large volumes of gas, and the region lacks pipelines to move it.

Spot prices at the Waha hub fell to minus $3.38 per million British thermal units for Wednesday from minus 2 cents for Tuesday, according to Intercontinental Exchange (ICE) data. That beat the prior all-time next-day low of minus $1.99 for March 29.

Prices have been negative in the real-time or next-day market since March 22.

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