Natural Gas Price Negative in US

Satyesh Bhandari

Just imagine you purchase something from market and you get paid for it instead of paying. Exactly same is happening in US in case of natural gas. ?The producer has to pay a consumer instead of the other way around for natural gas . This is what has been happening more and more frequently in West Texas, where the closing price of natural gas has been negative for nearly half of the ?trading days this year at the Waha Hub near the Permian Basin. Natural gas prices go negative when the supply overshoots the demand at a hub, and producers have to pay shippers to take it off their hands.

Waha prices have been negative a record number of times this year to date, and sank as low as minus (-)$4.595 per million British thermal units.

Even in 2020, when the COVID-19 pandemic turned global markets upside-down the price of?U.S. crude oil also went negative?for the first time ever. However, that time too Waha prices were negative only for nine days, according to the available data.

On the other hand, the benchmark price for U.S. natural gas, which is set at the Henry Hub in Louisiana, has not entered into negative territory. Similarly, natural gas prices in Europe jumped to 2024 highs last month after the news of Ukrainian troops crossed into Russia.

The benefit of negative gas price is not being transferred to U.S. retail customers to burn natural gas in their homes. But some of the natural gas-fired power plant operators in West Texas, have been paid to take some supply.

The negative prices at ?Waha Hub is due to Waha’s proximity to the Permian Basin, which is the epicenter of the U.S. shale boom. U.S. oil production has been at ?record highs this year, and as vast amounts of crude is produced, natural gas also produced as associated gas which is much more than local demand. A segment of a gas pipeline system was shut down following a fire and seasonal maintenance.

Gas traded at the Waha hub in West Texas has traded below zero most days since March 11 as strong production growth collides with springtime pipe maintenance. Prices fell to a low of -$3.54/MMBtu on April 15, or nearly $5 behind the Henry Hub. Crude producers in West Texas without pipe capacity from the Permian are paying other shippers to take their gas, absorbing the cost to maintain crude oil production.

Waha’s Negative Gas Prices Set an Unwelcome, Painful Record