Natural gas trades go into the negative in West Texas as oil production booms
Location, location, location—it isn’t just a mantra for the real-estate industry any more. As the geography of oil and gas shifts, the infrastructure that underpins it has been slower to adapt. The result has been unbelievable bargains for valuable commodities, if only one can get the product to market. These include crude oil in western Canada selling for barely above $10 a barrel and natural gas falling below the once-unimaginable zero barrier this week in Texas’ prolific Permian Basin.
According to Natural Gas Intelligence, some trades at the Waha delivery point for natural gas in Pecos County, Texas were negative this week, meaning that producers had to pay customers to take away the same gas that is selling at close to a four-year high on the New York Mercantile Exchange. The 700 or so miles between Pecos County and Erath, Louisiana, the Henry Hub delivery point for futures, might as well be a million until more pipeline links are completed next year.
The reason for the negative prices is that, in the hot shale patches like the Permian and Bakken, gas bubbles up with the crude and much of it is flared. Local environmental regulators put limits on that practice, though, forcing drillers to sell it or pay someone to take it.
The surfeit of “associated gas” is another bearish sign for crude oil, because it shows how much North American crude is ready to flow onto the market once crucial pipelines are built. Oil exporters meeting next week in Vienna to stabilize the market are racing against the clock.