U.S. natural gas gains contracts for winter

10/18/2019

NEW YORK (Reuters) - U.S. natural gas futures for the winter of 2020-2021 gained the most of any contracts on Thursday after Kinder Morgan Inc delayed the projected in service date for its $2 billion Permian Highway gas pipe in Texas to early 2021.

The market had expected Permian Highway to enter service during the second half of 2020, providing drillers with much needed takeaway capacity from the Permian shale in West Texas and eastern New Mexico ahead of next winter's seasonal increase in heating demand.

Prices for winter gas futures rose about 3 cents to $2.73 per million British thermal units (mmBtu) in January 2021 and $2.69 in February 2021.

That compared with a 1.4-cent move for the November 2019 front-month. The front-month is usually the biggest market mover since it reacts to changes in the weather and other short-term events.

"The Permian is expected to be the engine of natural gas production growth once again next year due to its ability to produce regardless of gas prices," Daniel Myers, market analyst at Gelber & Associates in Houston, said in a report.

"However, this may be in jeopardy without additional takeaway capacity from Permian Highway in 2020," Myers said.

The Permian is the biggest U.S. production area for crude oil and the second biggest for gas. Output in the basin is at record highs and is expected to grow.

Drillers in the Permian are seeking oil, which comes mixed in with a lot of gas. Producers have been burning off or flaring gas at record rates due to lack of pipeline capacity which caused gas prices in the Permian to turn negative earlier this year. Some producers paid others to take their gas.

Prices at the Waha hub <NG-WAH-WTX-SNL> in the Permian rose after another Kinder Morgan pipeline, the $1.75 billion, 2.0-billion cubic feet per day (bcfd) Gulf Coast Express, entered service in September.

One billion cubic feet is enough gas to supply about 5 million U.S. homes for a day.

Kinder Morgan has said the 2.1-bcfd Permian Highway is fully subscribed under long-term agreements with units of Blackstone Group Inc's EagleClaw Midstream, Apache Corp, Exxon Mobil Corp and others.

Kinder Morgan is building and will operate the pipe, which is owned by units of Kinder Morgan, EagleClaw, Altus Midstream Co and an anchor shipper.

(Reporting by Scott DiSavino; Editing by David Gregorio)