This year, the crude oil production in the United States soared to a record high. As a by-product of hydraulic fracturing for crude oil, the natural gas production in the Permian Basin far exceeds the capacity to transport to other areas with greater demand.
According to the WiseNews APP, in situations of supply and demand imbalance, natural gas producers have had to pay consumers instead of the other way around. It is known that this situation is becoming increasingly frequent in West Texas. Up to the end of July this year, the natural gas closing price in that area has been negative for 57 trading days. According to the S&P Global Commodity Insights' dataset on daily prices at the Waha hub near the Permian Basin, this figure accounts for 37% of the number of trading days during this statistical period. Additionally, it is more than six times the number of days in 2023 where the natural gas closing price was negative throughout the whole year.
In fact, the number of days where the natural gas closing price at the Waha hub has been negative so far this year has already reached a record high. At the end of July, the natural gas price at this hub was -0.845 US dollars per million British thermal units (BTUs), having fallen to -4.595 US dollars per million BTUs in May. According to S&P Global Commodity Insights' data, even in 2020 when the global market was in turmoil due to the pandemic and the US crude oil price fell into negative territory for the first time, the number of days where the natural gas closing price at the Waha hub was negative was only nine days.
The reason for this situation is that the Waha hub is close to the Permian Basin, which is the center of the US shale boom. This year, the crude oil production in the United States soared to a record high. As a by-product of hydraulic fracturing for crude oil, the natural gas production in the Permian Basin far exceeds the capacity to transport to other areas with greater demand.
Despite the high temperatures this summer increasing the demand for electricity and thus increasing the demand for natural gas, surplus supply has prevented natural gas prices from rising in West Texas. S&P Global stated: "The heat in the western US is once again pushing natural gas generation consumption in the region to record levels, but rising inventory levels are suppressing natural gas prices in the region, even in the volatile Southern California gas markets."
With natural gas prices at the Waha hub continuing to decline, energy producers have recently announced that they are restricting natural gas production. In addition, plans to build more pipelines will help alleviate the supply-demand imbalance of natural gas in West Texas and make it easier to transport natural gas to export facilities along the coast of Mexico.
However, the benchmark price for natural gas in the United States - the Henry Hub price in Louisiana - has not fallen into negative territory. After Ukraine claimed to have seized a facility belonging to Gazprom in Russia's Kursk Oblast, the natural gas prices in Europe jumped to a new high in 2024 in the past week.