Sometimes supply and demand become so out of balance that the producer has to pay the consumer and not the other way around.
This is becoming increasingly common in West Texas, where the closing price for natural gas was negative on 57 trading days this year through the end of July. New York Times pointed this out this week.
That’s 37% of the trading days during that period and more than six times as many negative days as in all of 2023, according to an S&P Global Commodity Insights dataset for the daily price at the Waha Hub near the Permian Basin.
In fact, according to Reuters, Waha prices have been negative more often than ever since the start of the year. At the end of July, Waha gas closed at -0.845 USD per million British Thermal Units and fell to as low as -4.595 USD in May.
Last year, natural gas prices at Waha were negative on nine trading days. In 2022, when world prices soared after Russia’s invasion of Ukraine, there were three such days, and in 2021 there were none at all.
Even in 2020, when the COVID-19 pandemic upended global markets and the price of U.S. crude oil turned negative for the first time ever, there were only nine days when Waha prices were negative, according to data from S&P Global Commodity Insights.
The reference price for US natural gas, which is set at the Henry Hub in Louisiana, has not slipped into negative territory. And in Europe, natural gas prices rose to a high of 2024 last week after Ukrainian troops invaded Russia and claimed control of a key gas transit hub.
Residential customers in the United States also do not receive any money for burning natural gas in their homes. However, operators of natural gas power plants in West Texas, such as Xcel Energy, have been paid to take a portion of the supplies.
This is due to specific regional factors, in particular Waha’s proximity to the Permian Basin, the epicenter of the shale oil boom in the United States.
Oil production in the US has reached a record high this year, and while fracking companies are producing huge amounts of crude oil, they are also producing natural gas – more than can be supplied to other areas with greater demand.
Earlier periods of negative prices in West Texas this year were due to shortages leading to oversupply. In April, a section of a pipeline system was shut down after a fire.
Given the weak prices, energy companies have recently signaled that they will cut gas production. And plans for additional pipelines should help reduce the supply-demand imbalance in West Texas, making it easier to deliver natural gas to export centers along the Gulf Coast.
This summer’s extreme heat has also increased demand for electricity, which in turn has increased demand for natural gas. However, an oversupply has prevented a further increase.
“Scorching heat in the western U.S. is pushing regional gas consumption back to record highs, but high storage levels are keeping prices low, even in the notoriously volatile Southern California gas market,” S&P Global said on Monday.
