Producers are bringing more wells online, adding fuel to a glutted market.
There’s so much natural gas flowing from Texas wells that producers are paying customers to take it off their hands. They can blame oil prices.
With crude hovering near a six-month high, the companies extracting it are tapping a stash of wells they drilled but hadn’t completed.
More oil at current prices means more cash. But one hitch is that those wells also produce gas, and right now the US gas market is glutted — thanks to an unseasonably warm winter that crippled demand. Stockpiles are nearly 40% above the five-year average. Pipelines are jammed.
Prices, as a result, have plummeted below zero, falling to about -$2 per million British thermal units this week in West Texas’ Waha hub.
And yet, with West Texas Intermediate above $85 a barrel, producers keep crude flowing even if that means taking a hit on the gas that comes with it.
“They’re bringing these drilled, uncompleted wells online because the price of oil is higher,” said Dennis Kissler, senior vice president for trading at BOK Financial Securities Inc. “It’s flooding the market with gas, and you’ve got no demand.”
It will be weeks before the air-conditioning season kicks in for much of the US and revives demand. So gas bulls don’t have much to be excited about in the near term.
If negative prices persist — or deepen — oil companies may rethink whether pumping more crude is worth the cost of paying someone to deal with its byproduct.
Share This: