US Shale Boom Pushing Gas Prices to Record Lows


Domestic U.S. energy output is continuously growing and is one of the major trends affecting global energy prices. Counteracting OPEC’s continuing oil production cuts, America’s push to become energy independent and eventually become an exporting nation in the years to come threatens to push prices of energy commodities to new lows. As it turns out, gas prices have reached record lows in some areas of Texas and New Mexico, even going into the negative as companies desperately find buyers to offshore their excess gas.

According to The Financial Times, gas prices at the Waha hub reached a record low a few days ago, closing at negative $1.95 – the lowest since S&P Global Platts began collecting data on gas prices back in 1994. The significant declines were caused for a variety of reasons including equipment failures for pipelines that made it harder to find outlets for excess gas. But the main problem is that there is a growing oversupply of gas as a by-product of the shale oilfields in the Permian Basin that can’t be disposed of safely.

Since 2016, oil production in the Permian are of Texas and New Mexico has increased by 120 percent, more than doubling as crude prices encouraged companies to switch their focus to shale. These reserves have significant quantities of natural gas which are extracted alongside crude oil, with the area’s gas output increasing by 120 percent as well over the past couple of years.

Overall, this new output is straining the existing pipeline network’s capacity to take the gas to market, with safety regulations preventing companies from venting the excess gas or burning it off. This forces them to find buyers for the commodity as prices went so low they crossed into the negative, effectively paying buyers to take the gas of their hands. At the same time, gas at the Henry hub around 650 miles away was being sold at a positive price of $2.67 per m BTU.

S&P Global Platts’ head of global gas planning Rich Redash went on to say that he didn’t expect there to be any relief from this excess gas buildup until new pipelines can increase the export capacity of the region. One company, Tellurian, is planning a 625-mile pipeline to supply the Waha region alongside a $15.2 billion plant planned in Louisiana for exporting natural gas.

Tellurian’s CEO Meg Gentle went on to say that there needs to be a “huge” increase in export capacity for the region as US gas production is rising around 20 billion cubic feet of gas per day, with most of that coming from the Permian Basin. “Even though I don’t believe those negative prices will persist, the price in the Permian is very low. I’m assuming a little bit of the 20 bcf a day is absorbed by the US market, and the rest needs to be exported.”

Just before the weekend, BNN Bloomberg reported that natural gas prices were declining across the board internationally, calling the situation a “winter hangover” with other markets such as Europe and Asia seeing significant price drops. “Prices could keep falling and stay low for weeks, perhaps until sometime closer to the middle of the year, after the market has adjusted and overcome frictions on the supply, demand and shipping sides,” said Citigroup analyst Anthony Yuen.

Overall, it doesn’t look like the situation is going to change much relatively soon. Until then, investors can enjoy watching the absurdity that is negative prices for natural gas in the Waha area.