Seeing that the Permian Basin is such a huge driver of the Texas natural gas market, as well as the largest oil field in the country, it’s important to periodically peer into what has been going on in that region.
As the EIA has recently reported, Kinder Morgan recently built the new GCX natural gas pipeline, which has increased natural gas prices already, as it is close to getting some use. In that same report, the EIA says “natural gas spot prices…settled at $1.55/million British thermal units (MMBtu) on August 15, the highest price since March 2019.”
In the Waha hub, in particular, prices have been rising. And that’s encouraging for many because prices were negative for quite some time.
Additionally, more pipelines will be set for construction in the future, as the EIA states that at least 7 more are on the horizon. They also speculate that the Waha hub’s spot prices will stay higher as a result.
Although, some of Waha’s prices rising have to do with lowered temperatures, as the summer is cooling off after all. The rise meant record high demands as cheap natural gas was used to generate electricity across the country to accommodate the heat.
Bottlenecks and Permian Projections
According to Forbes, as well as the CEO of Exxon himself, the natural gas will grow in years to come. Growth will be driven by more pipelines being opened. And like all commodity-driven expansion, it just takes time for prices to go back up. He pegs natural gas to rise by 1.3% per year.
More pipelines doesn’t necessarily guarantee a rise in oil prices for the major players like Exxon, but it surely helps to stave off the risk of more costly pipeline capacity constraints, which make it hard to meet the rising demand in the country. And so far, projections are looking accurate as this report from Moodys in 2018 shows how a late 2019 turnaround is the most likely considering the newer pipelines coming online.
This trend of more pipelines will only continue, as infrastructure will need to increase well into the next decade to accommodate growing production. John Coleman, who is the principal analyst for Wood Mackenzie Ltd., says that the coming years will see some of the biggest investments in pipeline infrastructure in history.
Selling Permian Oil Stocks
As Concho sells its Permian assets, and more of the bigger guys continue to buy stocks while the prices are so low, the Permian climate for oil and natural gas might look differently as Exxon and Chevron continue to accumulate more valuation in shale oil holdings. How this will affect natural gas prices despite coal’s decline and more effort towards expanding renewable energy, remains to be seen.