Sometimes supply and demand are so out of whack that producers must pay consumers instead of the other way around.
This situation is happening more and more frequently in West Texas. As of the end of July this year, the closing price of natural gas in the state has been negative for 57 consecutive trading days. new york times pointed out this week.
That represents 37% of the number of trading days in that time frame, for all of 2023, according to S&P Global Commodity Insights’ Waha Hub daily price data set near the Permian Basin. More than six times the number of days with negative numbers.
In fact, Waha has had a record number of negative prices so far this year, according to Reuters. At the end of July, Waha natural gas closed at -$0.845 per million British thermal units, having fallen to -$4.595 in May.
Last year, Waha natural gas prices were negative on nine trading days. There were three such days in 2022, when global prices soared after Russia invaded Ukraine, and none in 2021.
Even in 2020, when the COVID-19 pandemic upended global markets and U.S. crude prices turned negative for the first time, Waha prices were negative for only nine days, according to S&P Global Commodity Insights.
To be sure, U.S. natural gas benchmark prices set at Henry Hub, Louisiana, did not fall into negative territory. In Europe, natural gas prices jumped to 2024 highs last week after Ukrainian forces entered Russia and seized a key gas shipping hub.
U.S. retail customers also don’t get paid to burn natural gas in their homes. But operators of West Texas natural gas power plants, such as Xcel Energy, have been paid to access some of the supply.
This is due to specific regional factors, namely Waha’s proximity to the Permian Basin, the center of the U.S. shale gas boom.
U.S. oil production has soared to record highs this year as fracking pumps out vast amounts of crude and natural gas from the ground, outpacing production in other regions with greater demand.
West Texas has previously seen periods of negative prices this year as bottlenecks created an oversupply. In April, a section of the duct system was shut down due to a fire.
Amid weak prices, energy companies have recently said they are limiting natural gas production. Plans for additional pipelines should help ease the supply-demand imbalance in West Texas and make it easier to transport natural gas to export hubs along the Gulf Coast.
High temperatures this summer have also increased demand for electricity, increasing demand for natural gas. But oversupply is holding back price increases.
S&P Global said on Monday: “Scorching weather across the Western United States is pushing regional gas-fired generation to record highs again, but increased storage is keeping prices in check, even in the highly volatile Southern California natural gas market. “
