Natural Gas Weekly: May 12, 2023
Infrastructure - Natural gas prices in the Permian Basin fell into negative territory this week as maintenance on Permian Highway Pipeline (PHP) bottled some production in the basin. PHP began scheduled work on Tuesday (May 9), reducing throughput by up to 1 Bcf/d to the Texas Gulf Coast. The maintenance dropped available capacity on PHP to 1.1 Bcf/d May 9-10 and to 1.65 Bcf/d May 11-12, the pipeline said in a shipper notice. PHP plans to return to full capacity of 2.1 Bcf/d on Saturday (May 13).
The reduced takeaway sent Waha day-ahead prices trading to a low of -$0.46/MMBtu on Wednesday (May 10), or $2.67 behind the Henry Hub benchmark. Waha also traded below zero on Tuesday at a price of -$0.27. In these deals, producers without pipe takeaway effectively pay other shippers to take the gas in order to keep crude oil pumping.
East Daley tracks the basin's gas supply and midstream dynamics closely in the Permian Supply and Demand Forecast; we noted six months ago that pipeline takeaway would effectively fill by 1Q23. We've also seen indications of backed-up supply as new Permian midstream infrastructure starts. With gas production climbing and pipeline takeaway accounted for, near-zero or negative price events are becoming more frequent in the Permian. Waha prices also went negative in late October 2022 and fell close to zero in December 2022, at a time when California gas prices were surging past $40/MMBtu. We expect Permian pipelines to run at high-90% utilization rates until the Matterhorn pipeline begins service in 2024.
Rigs - Permian producers are mostly confirming 2023 guidance in 1Q23 quarterly updates. Most companies are guiding to around 10% oil and gas production growth this year, including majors ExxonMobil (XOM) and Chevron (CVX). East Daley forecasts dry gas and oil production to grow by 12% and 11%, respectively for 2023 (exit to exit). In the Permian Supply and Demand Forecast, we currently project dry gas volumes to exit 2023 at just over 17 Bcf/d and oil volumes exiting the year at 6.1 MMb/d.
Flows - Wildfires in northern Alberta and British Columbia have led producers and midstream operators to shut-in infrastructure, lowering oil and gas flows from Western Canada. More than 200 Mb/d of crude oil production was cut back, according to market reports, while TC Energy’s (TRP) Nova Gas Transmission system in Alberta reported up to a ~2.5 Bcf/d drop in receipts.
Operators reporting cuts include Paramount Resources, Tamarack Valley Resources, Vermillion Energy, Cenovus, Tourmaline Oil, Kiwetinohk Energy, Pipestone Energy and Crescent Point Energy. Pembina Pipeline (PBA) said Monday (May 8) it temporarily shut down the Saturn I and II gas plants at the Saturn and Duvernay gas processing complexes due to evacuation orders. PBA had earlier shut the 20-inch Peace Pipeline to Edmonton, AB, and the Wapiti, KA and K3 gas plants near Fox Creek, AB. As of Thursday (May 11), PBA reported all of its midstream infrastructure was back online.
Several Canadian midstream companies could see impacts to 2Q23 operations as a result these wildfires. East Daley analyzes asset-level performance for PBA, TC Energy (TRP) and Enbridge (ENB) in our Financial Blueprints and will monitor the fires closely.
Storage - EIA reported a 78 Bcf storage injection for the May 5 week, putting working gas inventory at 2,141 Bcf. In our updated Macro Supply and Demand Forecast, we estimate working gas ends May at 2,652 Bcf. US storage is 341 Bcf above the 5-year average after the latest EIA report.
Natural Gas Weekly
East Daley Analytics' Natural Gas Weekly provides a weekly update to our monthly Macro Supply and Demand Forecast. The update covers rigs, flows, production, prices and capacity constraints that materially change our view on supply and demand. This update highlights what investors and traders need to monitor in natural gas to ensure they are on the right side of the market. Subscribe to the Natural Gas Weekly.
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