Sometimes supply and demand get so out of control that the producer has to pay the consumer instead of the other way around.
This has happened more and more frequently in West Texas, where the natural gas closing price has been negative for 57 trading days this year through the end of July, New York Times This week he pointed out.
That’s 37% of trading days during that period and more than six times the number of negative days we’ve seen in all of 2023, according to a data set from S&P Global Commodity Insights for daily prices at the Waha Hub near the Permian Basin.
In fact, Oasis prices have been negative a record number of times so far this year, According to ReutersAt the end of July, the price of Waha gas closed at -$0.845 per million British thermal units, and fell to -$4.595 in May.
Last year, Waha natural gas prices were negative on nine trading days. In 2022, when global prices surged after Russia invaded Ukraine, there were three such days, and 2021 saw none.
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 S&P Global Commodity Insights data.
The benchmark price for U.S. natural gas, set at the Henry Hub in Louisiana, certainly hasn’t fallen into negative territory. In Europe, natural gas prices jumped to their highest levels in 2024 last week after Ukrainian forces crossed into Russia and entered its territory. They claimed to have seized a major gas transfer center..
Retail customers in the United States are not paid to burn natural gas in their homes, but natural gas-fired power plant operators in West Texas, such as Xcel Energy, have been paid to take some of the supply.
This is due to specific regional factors, particularly the Waha area’s proximity to the Permian Basin, the epicenter of the U.S. shale oil boom.
U.S. oil production has soared to record levels this year, and as drillers extract vast amounts of crude, natural gas is also coming out of the ground — more than can be delivered to other areas with greater demand.
Previous negative price periods in West Texas this year have come amid bottlenecks that created excess supply. In April, part of the pipeline system was shut down after a fire.
With prices weak, energy companies have recently indicated that they are working to limit gas production. Plans for additional pipelines are expected to help ease the supply-demand imbalance in West Texas, making it easier to send natural gas to export hubs along the Gulf Coast.
This summer’s extreme heat has also increased demand for electricity, which in turn has increased demand for natural gas. But the oversupply has kept prices from rising even higher.
“Extreme heat in the western United States is pushing regional gas-fired power consumption toward record highs again, but high storage levels are keeping prices in check, even in the notoriously volatile gas market in Southern California,” S&P Global said Monday.