Brendan McCracken, CEO of Ovintiv Inc., emphasized that persistent negative natural gas prices in the Permian Basin underscore the critical need for energy permit reform in the United States. He stated that the lack of adequate takeaway capacity for natural gas, stemming from regulatory hurdles and slow permitting processes, is a significant factor contributing to these price dislocations.
In the Permian Basin, oil producers are currently experiencing a boon with crude prices 50% higher than before the Iran war, leading to increased drilling. However, natural gas extracted alongside oil, known as associated gas, has flooded the market. Due to pipeline constraints, producers are often forced to pay customers to take the gas or shut in wells, with estimates suggesting $200 million to $400 million cubic feet per day being curtailed. The Waha Hub, a key benchmark for Permian gas, has seen negative prices for 124 of the past 131 days, reaching a record low of -$9.60 per million British thermal units on April 24, before recovering to -33 cents on June 4.
McCracken's comments align with sentiments from other Permian operators, including Permian Resources Corp. and Devon Energy Corp., which have shut in wells with high gas-to-oil ratios. Companies like Targa Resources have also acknowledged the significant volumes of gas being curtailed. While new pipeline projects expected later this year could alleviate some constraints, the current situation highlights the infrastructure gap and the impact of regulatory delays on energy markets.
The broader US natural gas market has also seen recent declines due to cooler weather forecasts, leading to reduced demand for gas-fired electricity, and lower gas flows to liquefied natural gas (LNG) export facilities. This has increased domestic supply and contributed to overall price weakness. This confluence of regional infrastructure issues and national market dynamics further stresses the importance of efficient permitting to ensure energy supply can meet demand and flow to where it is needed.
