Oil Price
Natural gas prices at the Waha hub in the Permian basin in Texas slumped to a negative value of -$2.00 per million British thermal units (MMBtu) this week as the recent rise in oil prices prompts producers to bring drilled but uncompleted wells online.
As the U.S. benchmark oil price, West Texas Intermediate, hit $85 per barrel—the highest level in nearly six months, Texas producers keep pumping crude, but their wells also produce gas, which basically has nowhere to go.
While producers are chasing higher realizations for the crude they pump, they are depressing further an already depressed U.S. natural gas market, which has been oversupplied for months due to a milder winter and lower demand for heating and electricity.
Producers in West Texas are hit by the negative price of natural gas at the Waha hub, which means that they have to pay for someone to take that gas. But demand just isn’t there.
“They’re bringing these drilled, uncompleted wells online because the price of oil is higher,” Dennis Kissler, senior vice president for trading at BOK Financial Securities, told Bloomberg.
“It’s flooding the market with gas, and you’ve got no demand,” Kissler added.
Yet, signs have started to emerge that the natural gas glut may have started to hold back drilling in parts of the Permian basin.
U.S. oil producers are not in a rush to significantly boost crude production despite oil prices hovering at a six-month high, as multi-year low natural gas prices and higher costs are weighing on the industry, analysts and executives told Reuters earlier this month.
Oil producers in America are also mindful of the investor demands for higher returns, not necessarily higher production.
“Natural gas is currently pricing at or below costs of production,” an executive at an exploration and production company said in comments in the latest quarterly Dallas Fed Energy Survey released at the end of March.
By Charles Kennedy for Oilprice.com
Lead image (Credit: Reuters)
