Demand for gas from the West Texas Waha hub has been surging, driven by increased shipments of Permian gas to key markets, including the Western US and Gulf Coast. Spot prices at Waha are up 50 cents from June to July, at $3.43/MMBtu, and have doubled compared to prices at the same time last year.

Weaker natural gas production in the Permian Basin, coupled with rising demand for gas supplies, has pushed summer basis prices at the Waha Hub in West Texas to an average $2.67 per million British thermal units, a multiyear high. Permian gas output is down around 9% from year-ago levels to roughly 11.6 billion cubic feet per day this year through April, according to S&P Global Platts Analytics.

Lower Permian Basin natural gas production in wake of this year's oil market crash, combined with stronger gas prices at the Waha hub, are creating new regional flow patterns and causing reduced utilization of pipelines flowing northbound and westbound from the Permian. The anticipated 2021 startup of the Permian Highway and Whistler pipelines, which connect the Permian with the Texas Gulf Coast market, will likely accelerate this shift.

Natural gas prices at the Waha hub in Texas rose last month ahead of the impending startup of the 2-billion-cubic-feet-per-day Gulf Coast Express Pipeline, hitting $1.55/million British thermal units on August 15, the highest level since March. The pipeline will provide a much-needed outlet for booming Permian gas supplies while helping reduce the gap between Waha and Henry Hub spot prices, which was as wide as $2/MMBtu to $3/MMBtu between March and June.

Natural gas production in the Permian Basin hit a record of about 7.2 billion cubic feet per day earlier this month, but market constraints and a lack of infrastructure threaten to kill the momentum. As gas supplies from the Anadarko and San Juan basins increasingly meet demand in the Midwest and Southwest, Permian producers will be forced to look to eastern markets, but eastbound pipeline capacity from the Permian is limited at just 2.8 billion cubic feet per day.