The Surprising Shift in Natural Gas Prices
Two years ago, the world watched in shock as natural-gas prices skyrocketed following Russia’s invasion of Ukraine, which led to significant restrictions on fuel supplies to numerous European nations. This geopolitical crisis left Western leaders grappling with fears of energy shortages and economic instability.
Fast forward to today, and the narrative has dramatically shifted. The abundance of natural gas in the U.S. has reached such heights that energy producers in regions like West Texas are sometimes paying businesses to take excess gas off their hands. In fact, natural gas has been trading below zero for extended periods this year in West Texas, which is home to the largest oil field in the United States, the Permian Basin.
While companies in this region primarily focus on drilling for crude oil, natural gas is an inevitable byproduct of this process. The sheer volume of gas being produced is so substantial that on certain days, drillers find themselves lacking the necessary storage facilities or pipeline capacity to transport the gas to markets on the Gulf Coast or in California, where demand is considerably higher.
This imbalance has led to a peculiar situation in the local market, where producers are effectively compensating buyers to take away what should be a valuable commodity. In West Texas, natural gas prices plummeted below zero on 57 days this year up until July. This is a stark increase from the nine days recorded in all of 2022, as reported by S&P Global Commodity Insights.
In May, the spot market for natural gas saw prices dip as low as negative $4.60 per million British thermal units. On the same day, however, natural gas in Florida, which is essential for cooking, home heating, and electricity generation, was trading for over $3.
Mike Howard, the chief executive of Howard Energy Partners, which specializes in processing and transporting natural gas, succinctly summarizes the situation: “The story in the Permian is: Where’s the gas going to go?”
