Permian Gas Glut Means Producers Are Paying Buyers to Haul It Away
- While Europe and Asia face gas shortages, rationing, and soaring prices due to the Iran conflict, the U.S. Permian Basin is flooded with natural gas, with prices turning deeply negative because pipeline capacity cannot keep up with production.
- Cheap U.S. gas is hurting producers like Diamondback Energy and EQT Corporation, but benefiting the broader U.S. economy.
- Analysts expect U.S. gas prices to remain relatively low for years as production keeps rising.
The war in Iran has choked natural gas supplies across Europe and Asia, leading to fuel rationing and blackouts, but in the heart of US shale country, the market is swimming in supply.
Gas in the Permian Basin of West Texas and New Mexico is so plentiful that producers are having to pay buyers to get rid of it. Bloomberg reports that there is so much inventory that it exceeds available pipeline capacity. “Prices aren’t merely cheap, they’re negative,” states the April 29 article, noting that Permian gas hit an all-time low of -$9.60 per million British thermal units on April 24.
In the Permian, gas prices have dipped below zero intermittently since 2019 as pipeline construction failed to keep pace with soaring production. But this year, negative pricing has been more pronounced than ever.
US natural gas futures have slipped 10% since the Middle East conflict began, a situation that contrasts sharply with Europe, where prices are up about 40%, and Asia, where they’ve jumped more than 50%.
The gas glut is creating winners and losers.
For Permian producers like Diamondback Energy (NASDAQ;FANG), low prices have been a drag on profits. In an earnings call, executives said they are “consciously moving away from Waha,” the Permian pricing hub, and increasing their exposure to higher-priced markets near population centers, export facilities and planned data centers.
Related: Sinopec Opens Major Ultra-Deep Shale Gas Play in China
EQT Corp (NYSE:EQT) has curtailed output due to persistently low spot prices.
The silver lining in this low-priced cloud? The US economy. Not only are lower natgas prices insulating the United States from war-driven energy shocks, but they are also creating an economic tailwind.
Cheap supplies of gas — a key manufacturing input and a major player in meeting power demand from artificial intelligence — stand to give the US an edge over countries facing fuel shortages.
Petrochemical producers like Dow are among the companies benefiting from low-cost industrial gas, Bloomberg reports.
While Americans are facing inflation across most goods and services, electricity prices would be higher if it wasn’t for the natural gas glut. In March’s CPI inflation numbers, utility gas prices fell 0.9%.
Anna Wong, chief economist at Bloomberg Economics, believes The divergence between gas prices in America and the rest of the world “could mean the US economy will prove more resilient than expected this year. Natural gas is more important to the manufacturing sector — particularly chemicals, fertilizers, electricity — than crude oil is.”
Of course, the gas glut won’t last forever.
Forward prices for Waha gas are shown flipping to positive in October, around the time that the Blackcomb Pipeline enters service, with five new Permian conduits set to bring about 11 billion cubic feet a day of capacity by the end of 2028. While that amounts to roughly 10% of US gas production, Bloomberg concludes that abundant shale production and limited export capacity mean US gas prices are poised to remain low relative to the rest of the world for years to come. Gas will average well below $4 through 2027, American government forecasts show, while production is poised to hit fresh records.
According to Barchart, on Tuesday the Energy Information Administration (EIA) raised its forecast for 2026 US dry natgas production to 110.61 bcf/day from an April estimate of 109.60 bcf/day.
US nat-gas production is currently near a record high, with active US nat-gas rigs posting a 2.5-year high in late February.
On April 17, nat-gas prices tumbled to a 1.5-year nearest-futures low amid robust US gas storage. EIA nat-gas inventories as of April 24 were +7.7% above their 5-year seasonal average, signaling abundant US nat-gas supplies.
The EIA forecasts Lower 48 natural gas production will increase 3% this year compared with 2025, largely because of rising production in the latter part of the year. The increase is driven mainly by the Permian region, which the EIA expects to produce 29.2 bcf/d in 2026, or 6% more than in 2025.
It expects L48 production to steadily increase throughout its forecast period, averaging 118.9 bcf/d in 2026 and 124.0 bcf/d in 2027.
By Andrew Topf for Oilprice.com
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