May 02 2022
Permian gas benchmark Waha Hub saw its basis spread to cash Henry Hub widen in May 2 trading to its largest discount since October 2020, ahead of a planned maintenance on Kinder Morgan's Permian Highway Pipeline that will substantially limit eastbound takeaway capacity May 3-13.
The 2.1 Bcf/d Permian Highway pipeline brings gas from the Waha area of the Permian Basin east to the Katy area near Houston, supplying Gulf Coast demand markets.
Waha Hub spot gas dropped 66.50 cents to $5.485/MMBtu in May 2 trading for next-day flows, according to preliminary settlement data from S&P Global Commodity Insights, doubling its basis spread to cash Henry Hub to a $1.815 discount. El Paso, West Texas spot gas saw an even steeper drop in May 2 trading, falling 76.50 cents to $5.38/MMBtu, widening its discount to cash Henry Hub to nearly $2.
With less gas able to make its way toward the Gulf Coast from West Texas, East Texas spot gas prices soared in May 2 trading. Katy Hub gained 68.50 cents to trade at $7.205/MMBtu, while further south Agua Dulce gained 73 cents to trade at $7.17/MMBtu, preliminary settlement data shows.
With East Texas playing an increasingly important role in supplying the Southeast and its surging LNG feedgas demand so far this year, the anticipated drop in East Texas supply has likely reverberated in Southeast spot gas prices as well, which rose substantially in May 2 trading. Preliminary settlement data shows that Henry Hub rose 46.50 cents to $7.30/MMBtu, with similar gains of 40-70 cents observed across the region.
Permian Highway Pipeline will start scheduled maintenance work on its five compressor stations May 3, with capacity set to decrease 1 Bcf/d-1.1 Bcf/d for May 3-6, then increase to 1.8 Bcf/d for May 7-9, and fall to 1.65 Bcf/d until the planned conclusion of the maintenance May 13.
Cash Waha's discounts will likely be widest during the initial May 3-6 stage of the maintenance work, with the spread set to narrow in May 6 trading for May 7-9 flows, in tandem with the 700 MMcf/d increase in capacity available for those flow days.
Waha Hub's spread to cash Henry Hub has largely been insulated from similar blow-outs since Permian Highway Pipeline came online in January 2021, adding around 2 Bcf/d of additional takeaway capacity. July 2021 in-service of the 2 Bcf/d Whistler Pipeline provided even more relief to the Waha basis.
Since then, Waha's discount has largely remained below $1/MMBtu, except in sporadic cases of pipeline maintenance or repair work. Most recently, Waha Hub's discount widened beyond $1 in the last week of March, ahead of a four-day planned maintenance project on Gulf Coast Express.
With Permian gas production projected to rise over the next several years, a race will emerge between a slew of proposed pipeline expansion projects and rising production volumes, with Waha Hub's spread serving as a barometer for how that balance evens out.
Kinder Morgan proposed adding up to 1.2 Bcf/d of capacity on its Permian Highway Pipeline and Gulf Coast Express pipeline April 20, although no investment decision had been taken as of May 2. Whistler Pipeline took a final investment decision May 2 to expand capacity by 500 MMcf/d, with a targeted in-service of September 2023.