Pipeline restrictions and falling demand push Waha Hub spot gas to six-month low

Strong points

Waha Hub money drops below $ 3 for the first time since June

Flows to the west of EPNG are limited

Mild West Texas Weather Forecast

The spot price of the Permian Waha Hub spot gas benchmark fell to its lowest level in six months during the December 23 session as additional restrictions on pipeline capacity limit outflows and a Prediction of record high temperatures in West Texas lowers expectations for local demand for gas for heating. .

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Waha Hub’s cash fell 84 cents to $ 2.535 / MMBtu on Dec.23 for flows Dec.24-27, according to preliminary settlement data from Platts, which will be its lowest price since June 7 if it sticks to the final settlement. The drop widened Waha Hub’s discount to Henry Hub cash to 98 cents from 61 cents on December 22.

As spot gas prices in the southwestern United States fell on December 23, Waha Hub and nearby Permian pricing locations saw spreads to pricing locations further west explode. the last days.

Preliminary settlement data from Platts shows that Waha Hub’s spread to Transwestern Pipeline-San Juan exploded at a discount of $ 3.515 on December 23, down from around $ 1.60 the week before and 13 cents at the start of the month. Similarly, Waha’s spread to El Paso’s main natural gas grid hit a discount of $ 4.035 on December 23, down from $ 2.35 on December 16 and 61 cents on December 1.

El Paso-Permian and Transwestern-Permian followed the Waha Hub, also falling below $ 3 / MMBtu on December 23.

Pipeline capacity restrictions

The flow constraints on pipelines between West Texas and major gas demand centers further west are potentially the main price disconnection factor.

El Paso declared force majeure on December 22 at the Dilkon “B” compressor station, after the unit suffered an equipment failure. The operational capacity of the El Paso North Mainline has been reduced by an additional 92 MMcf / d, effective December 23 until further notice. The updated pipeline maintenance schedule in December shows that the capacity of the north mainline will be reduced by 180 MMcf / d from December 23 to 26, and then by 208 MMcf / d on December 27.

Other branches of the El Paso pipeline system that carried gas west are also experiencing stress, most notably the 2000 line, which remains offline after a pipeline rupture in mid-August. As a result, EPNG’s bulletin board showed that capacity for several major segments had been almost or entirely reserved for timely appointments on December 23, including CORN LPW, LORDS B and CASAG HP.

Lower demand

The impact of pipeline restrictions has been exacerbated by robust Permian production and expectations of weaker demand, both locally and for exports south to Mexico.

The National Weather Service predicts that West Texas will experience unusually warm weather in the near term, which will reduce the potential for local heating demand to absorb the additional supply.

Midland, Texas is expected to peak in the upper 70s and 80s Fahrenheit from Dec. 24-27, which could exceed the highest temperatures on record for this time of year, according to annual records dating back to 1931. Holiday weekends were to remain the 50s F.

Midland normally sees highs in the upper 50s F and lows in the lower 30s F, weather service data showed.

The demand for gas in Mexico typically drops during the Christmas and New Year holidays, which could also push Permian prices down. In the past three winter holiday seasons, gas exports from the United States to Mexico fell 14-20% on January 24. 2, compared to the averages of the previous 30 days.

Outlook

Although Waha Hub’s January and February contracts traded lower on the Intercontinental Exchange on December 23, both contracts were trading at a premium to Henry Hub, suggesting market expectations for Waha prices higher. students.

Futures on ICE also showed that the large spreads between Waha and other places further west like El Paso-San Juan are expected to continue into January. The January El Paso-San Juan contract was trading at a premium of $ 1.81 over Henry Hub on the morning of December 23, compared to Waha’s 22-cent premium in January.

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