Locator: 51795AAPL.
Tag: Apple
As we wrote in Open The Door, Permian gas production had been constrained until recently, causing negative cash prices in the basin for some time before the Gulf Coast Express expansion began service. The basin produces massive amounts of associated natural gas, but because of its location in West Texas and southeastern New Mexico there is almost no local market to serve. Nearly all the production in the basin is consumed elsewhere, and that requires massive pipeline takeaway capacity.
The U.S. has two different types of pipelines, interstate (those that cross state lines) and intrastate (those that don’t). Nearly all of the buildout already online and still coming in the Permian is comprised of intrastate pipelines, which are not regulated by the Federal Regulatory Energy Commission (FERC). Intrastate pipelines have to report far less data than the pipelines that cross state lines and don’t report any flow data, and often companies don’t even announce that a project has come online until well after the fact. So, given the lower reporting requirements, how do we even know that the Gulf Coast Express expansion or Hugh Brinson are online?
We can see it in the market, in the price response and pipeline flow response of connected infrastructure. Let’s start with Gulf Coast Express, which took the market from constrained to unconstrained and is obvious to see — if you know what to look for. First, from a pricing perspective, in just a few days this summer, Waha cash prices (blue line in Figure 1 below) went from less than negative $1/MMBtu to above $1.50/MMBtu. Prices averaged just above zero (horizontal red line) in June and have been largely between $1.50/MMBtu and $2/MMBtu since July.
