The Henry Hub-Waha basis spread collapsed 76% Q-o-Q in 3Q26, from $6.83/MMBtu to $1.61, as new Permian takeaway capacity pushed Waha prices back into positive territory. The recovery is both bullish and bearish for midstream, squeezing historically lucrative gas marketing margins, but also helping restore curtailed production. As 3Q26 earnings unfold, East Daley Analytics expects stronger throughput to increasingly support fee-based revenues, changing the composition of midstream earnings.
Delaware Volumes Point to Recovering Throughput
East Daley’s 3Q26 processing plant samples in the Delaware Basin show rich-gas volumes increased ~5% Q-o-Q, following a softer second quarter. July accounted for most of the rebound, with volumes holding steady in August and declining ~2% M-o-M in September.
That September decline may prove to be a head fake. As new Permian takeaway capacity alleviates Waha constraints, previously curtailed production can flow again. That increases processing-plant inlet volumes and, in turn, residue gas and NGL supply. The key questions now are how quickly that recovery materializes, and which operators can capture the incremental volumes.
The recovery is already visible across several midstream systems. East Daley’s plant-level data shows inlet volumes increased 21% Q-o-Q at Phillips 66’s (PSX) sampled Delaware facilities and ~2.5% at Targa Resources’ (TRGP) sampled plants. Kinetik’s (KNTK) Durango plant and Matador Resources’ (MTDR) San Mateo system also recorded July-to-August inlet volume gains of 22% and 14%, respectively.
What It Means for Midstream Earnings
The implications for midstream operators are two-sided. Companies with exposure to historically wide Waha-to-Henry Hub marketing spreads have fewer opportunities to capture commodity-related margins. However, higher processing and pipeline throughput creates opportunities for additional fee-based earnings, offsetting a portion of the lost marketing income.
For Kinetik (KNTK), the stakes are particularly high. KNTK has more concentrated Permian G&P exposure than larger, diversified midstream operators, so it needs incremental throughput to help offset declining commodity-related marketing margins. Permian Resources (PR), APA and EOG Resources (EOG) are among the producers we expect to drive volume growth.
The question is whether the anticipated production ramp will be sufficient to support Kinetik’s processing volumes and Adj. EBITDA expectations. East Daley’s proprietary plant-level data provides an early indication of whether producers are delivering those volumes, potentially before the impact becomes evident in reported earnings.
What Happens Next?
Energy Transfer’s (ET) Hugh Brinson Pipeline is ramping toward its 1.5 Bcf/d Phase I capacity, while Blackcomb targets a 4Q26 startup, with eventual capacity of 2.5 Bcf/d. Both projects should further alleviate Permian takeaway constraints, creating opportunities for additional natural gas and NGL supply growth.
The next test comes in 4Q26. We forecast an additional 0.75 Bcf/d of Permian residue gas supply between September and December as new takeaway capacity comes online. The magnitude and timing of that increase will determine how much additional processing throughput, NGL production, and fee-based revenue midstream operators can capture.
Bottom Line: Waha’s recovery is changing the economics for Permian midstream companies. Marketing margins are compressing, just as opportunities for higher processing and transportation volumes expand. KNTK’s expected 4Q ramp provides an important test of that transition. East Daley’s proprietary processing-plant data will help identify which operators are capturing the growth, and which are falling short of expectations, heading into 2027. – Rob Wilson, CFA & London Spivey, CFA Tickers: APA, EOG, ET, KNTK, MTDR, PR, PSX,.
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