Natural gas prices in the Permian shale basin in West Texas turned negative a record number of times so far in 2024, including on July 31 as pipeline and other constraints trap gas in the nation's biggest oil-producing basin.

Spot gas prices for July 31 at the Waha hub in West Texas turned negative for a third time in July even as a record-breaking heatwave could boost U.S. power demand to an all-time high later this week as homes and businesses crank up their air conditioners.

Analysts say that is a sure sign the region needs more gas pipes, which has already prompted Kinder Morgan, Energy Transfer and other U.S. energy firms to propose new projects.

"The only way for prices to stay in positive territory is through new pipeline capacity," Chad Bircher, lead quantitative analyst on North American natural gas at financial services firm LSEG, told Reuters.

There is, however, only one big gas pipe actually under construction in the Permian at this time - the Matterhorn Express Pipeline - which analysts say is on track to enter service later this year.

“As production in the Permian Basin continues to grow and demand increases, the Matterhorn Express Pipeline’s takeaway capacity provides much needed transport of natural gas to end markets," Matterhorn Express Pipeline spokesman Cody McGregor told Reuters.

In the past, Matterhorn Express projected the 490-mile (789-kilometer) pipe capable of moving up to 2.5 billion cubic feet per day (bcfd) of gas from the Permian to the Gulf Coast, could enter service in the third quarter of 2024, but most analysts now expect the project to start in the fourth quarter.

Matterhorn Express is a joint venture between units of WhiteWater Midstream, EnLink Midstream, Devon Energy and MPLX, according to WhiteWater's website.

"The revision to the construction schedule would delay by several months new natural gas volumes from the Permian and keep prices under pressure in the basin," analysts at energy consultant East Daley Analytics said in a note.

The Permian in West Texas and eastern New Mexico is the nation's biggest and fastest growing oil-producing shale basin. A lot of gas also comes out of the ground with that oil.

When oil prices CLc1 are relatively high, like they have been this year, producers are willing to take a loss on gas because they can still make money selling oil.

Next-day prices at the Waha averaged below zero 22 times so far this year. Waha prices first averaged below zero in 2019. It happened 17 times in 2019, six in 2020 and once in 2023.

There were no negative prices in 2021 or 2022 (at least no daily averages below zero) because energy firms built new pipelines, including the Permian Highway and Whistler, to move more gas out of the Permian.

Proposed new pipes

Although several firms have proposed to build new pipes in the Permian, analysts have said two projects were most advanced - Kinder Morgan's 0.57-Bcf/d Gulf Coast expansion and Energy Transfer's 1.5-Bcf/d Warrior.

So far, however, neither firm has committed to building their project.

Kinder Morgan told Reuters "We continue to see interest in the project and are working with potential customers."

Energy Transfer had no comment beyond what they said on past earnings calls.

"We're not going to run out and FID (final investment decision) Warrior when we have some capacity on our existing system," Energy Transfer co-CEO Marshall McCrea told analysts during the company's first quarter earnings call in May.

McCrea, however, said "There remains ... strong interest in another pipeline, probably by mid to late 2026. We are very optimistic that we will build the next pipeline to come out of West Texas."

Analysts expect Energy Transfer to have more to say about Warrior when it releases its second quarter earnings on Aug. 7.

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