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Permian Natural Gas Flows to US Southwest Remain Strong

Permian Basin Oil and Gas to the Southwestern United States’ natural gas failed pipeline to lower flows, although the Gulf Coast Express pipeline started. The flow will likely edge to reduce prices in the region in the coming days.

On September 25, the Gulf Coast Express entered commercial service. It added 2 billion cubic feet of gas per day of new takeaway capacity from the Permian for delivery to Gulf Coast markets. Once online, the Gulf Coast Express expected not to utilize some new Permian production. Also, use volumes that flow from the Permian to the Southwest and Midwest regions.

The project is now online for two weeks. Little to no displacement has occurred from volumes flowing out of the Permian to the neighboring regions. Besides, the new pipeline filled with new Permian production and supply previously flowing on intrastate pipelines, according to S&P Global Platts Analytics.

Moreover, the focus is mainly on the Permian channel to the Southwest along El Paso’s San Juan Crossover. The continuation of strong flows toward the San Juan will likely once again bring high bearish prices across the Southwest this spring. The flows are similar to April and May of this year.

Before Permian constraints, El Paso San Juan gas typically traded around a 9 cent per metric million British thermal unit discount to Waha hub. Also, this incentivized flows to move from San Juan into Texas. Starting in June 2018, the Permian became more and more strained. Besides, the relationship switched, and El Paso, San Juan averaged a 17-cent premium to Waha company, incentivizing flows to switch. It began flowing northwest out of the Permian and into San Juan.

 

Permian Production and Gulf Coast Express

Permian production continues to jump up and fill the Gulf Coast Express with new output over the next couple of months. Also, the possibility of weakening northwest flows along San Juan Crossover becomes lower and lower.

The most extensive spread observed this spring as Waha oil company prices went negative in April and May. It caused the Waha firm to San Juan spread to increase to $1.48/MMBtu. This month spreads between the two hubs narrowed to 31 cents/MMBtu. Also, it is the lowest level since October 2018. Outflows from the Permian to the San Juan remain near capacity at 450 million cubic feet per day. It is because the spread remains well in the money, according to Platts Analytics.

Furthermore, the current forward curve supports continued flows from the Permian to San Juan as spreads have widened. The forward curve is from just a month ago, to $1/MMBtu beginning in April. The additional 400-500 MMcf/d of supply into the San Juan area will once again place downward pressure on regional prices across the Southwest. The data is according to Platts Analytics. Additionally, likely, south to north flows from the San Juan into the Rockies will also continue. The demand in the Southwest and Southern California is limited, especially during shoulder seasons.

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