The Matterhorn natural gas pipeline, currently the largest under construction in Texas, has begun transporting small amounts of natural gas from the Permian Basin in West Texas toward the Gulf Coast. This development is seen as a crucial step in addressing the ongoing issue of negative natural gas prices at the Waha Hub, a key trading point for Permian gas. Executives at Permian Resources shared these updates earlier this week during the Barclays CEO Energy-Power Conference.
The Matterhorn pipeline, developed by a consortium of energy companies, is designed to transport natural gas that has been stranded in the Permian Basin due to insufficient pipeline capacity. This situation has caused a surplus of gas, forcing prices at the Waha Hub to dip into negative territory a record number of times in 2024. The glut of natural gas is a byproduct of increased oil production in the region, as natural gas is often produced alongside oil in these wells. However, because pipeline infrastructure has not kept pace with production, much of the gas remains trapped, leading to steep discounts or even negative pricing at Waha.
Waha Price Woes
The Waha Hub, which serves as a pricing point for natural gas in West Texas, has seen its prices drop below zero for a record number of days this year. As of August 29, prices at Waha hit an all-time low of minus $4.80 per million British thermal units (mmBtu). This marked the 33rd time in 2024 that prices at Waha averaged below zero, a significant increase compared to previous years. In 2019, for example, Waha prices dipped into negative territory just 17 times, and there were only six such occurrences in 2020. By contrast, 2024 has set a new record for negative pricing, underscoring the severe constraints faced by gas producers in the Permian.
The executives at Permian Resources acknowledged the difficulties faced by gas producers during the conference. “Spot Waha has not been a fun place to sell gas over the past few months,” they said. “We would like to sell gas at more than zero.” The negative pricing occurs when pipeline and storage capacity are maxed out, leaving producers with few options but to offload gas at a loss, or even pay buyers to take the gas off their hands.
Matterhorn to the Rescue
The Matterhorn pipeline, once fully operational, is expected to alleviate some of the pricing pressure at the Waha Hub by providing much-needed transportation capacity for natural gas. The 490-mile (789-kilometer) pipeline will have the capacity to move up to 2.5 billion cubic feet per day (bcfd) of gas from the Permian Basin to the Gulf Coast, where it can be exported as liquefied natural gas (LNG) or sold to markets with higher demand.
During the Barclays conference, executives at Permian Resources noted that the Matterhorn pipeline had already started moving small amounts of gas and is expected to ramp up operations in the coming months. “The Matterhorn is online and moving little bits of gas,” they said, adding that the pipeline should be “moving a real amount of gas in the next few months, and we’re hoping to at least see Waha turn positive.”
As the pipeline’s capacity increases, analysts and executives expect that Waha gas prices will stabilize and return to consistently positive territory. This would be a welcome relief for gas producers in the Permian Basin, who have struggled with volatile and often negative prices in recent years.
Outlook for Permian Gas Producers
The startup of the Matterhorn pipeline is one of several key infrastructure projects aimed at relieving the bottlenecks that have plagued the Permian Basin’s natural gas market. With more gas flowing to the Gulf Coast, producers will have better access to markets where demand is higher, particularly in the export market for liquefied natural gas. This could provide a more sustainable pricing environment for Permian gas producers, who have been operating under challenging conditions.
However, the road to recovery for Waha gas prices may take some time, as the ramp-up of the Matterhorn pipeline and other infrastructure projects will not be instantaneous. Furthermore, the overall supply of gas from the Permian Basin continues to grow as oil production increases, adding pressure on the existing pipeline network.
Future Developments
Matterhorn Express, the venture behind the pipeline, had previously projected that the pipeline would enter full service by the third quarter of 2024. Once fully operational, the Matterhorn will play a critical role in balancing supply and demand for natural gas in the Permian Basin, ultimately helping to stabilize prices at the Waha Hub and improve the economics for gas producers in the region.
As the U.S. energy landscape continues to evolve, the Matterhorn pipeline will be instrumental in addressing one of the biggest challenges facing Permian gas producers: getting their product to market. By providing additional capacity to transport gas out of the Permian Basin, the pipeline will help ensure that the region’s vast energy resources can be more effectively utilized, benefiting producers, consumers, and the broader energy market.
In conclusion, while the Matterhorn pipeline is still in its early stages of operation, its future promises to be a game changer for the Permian Basin, potentially turning the tide on negative gas pricing and offering much-needed relief to producers who have been struggling with infrastructure bottlenecks.
