In a recent discussion hosted by Armando Cavanha, RBAC’s Robert Kachmar and Cyrus Brooks explored the relationship between Permian natural gas production, pipeline takeaway capacity, U.S. LNG exports, global energy security, European gas demand, and the rapidly growing electricity needs of data centers. The conversation highlighted how developments in a seemingly regional pipeline system can have consequences that extend well beyond West Texas.
Here are some of the key insights:
Why Does Permian Gas Sometimes Trade at Negative Prices?
Many wells in the basin are primarily focused on oil, meaning natural gas is produced as a byproduct. Historically, takeaway infrastructure has been more focused on oil than gas, creating situations where there is insufficient pipeline capacity to move the associated gas out of the region.
During periods of pipeline maintenance or weak demand, that constraint can become particularly severe. Producers may effectively have to pay someone to take the gas because shutting in an oil-producing well can be economically unattractive when oil and natural gas liquids remain valuable.
New Pipelines Are Providing Breathing Room But More Will Be Needed
New pipeline capacity has already provided relief for Permian producers by allowing more gas to move toward the Gulf Coast. Production will take time to ramp up and utilize the newly available capacity, while continued growth in LNG exports is expected to create additional demand for U.S. natural gas over the next five to 10 years.
The Permian Is Becoming More Important to Global Gas Markets
The panel noted that concerns over security of supply are spreading across Europe, Southeast Asia, China and other major consuming regions. At the same time, LNG trade faces additional logistical considerations, including the Strait of Hormuz, the Suez Canal and constraints affecting the Panama Canal.
The United States has become a major source of incremental LNG supply, while global buyers are placing greater value on diversification and reliable access to molecules. As a result, infrastructure connecting U.S. production regions to LNG export terminals is becoming strategically important well beyond the domestic market.
Data Centers Add Another Layer of Demand
New electricity generation specifically for data centers is creating additional demand for natural gas, particularly in areas where connecting large new loads to the existing electric grid is difficult or time-consuming.
The panel noted that some data center developers are attempting to build facilities near natural gas resources. By locating closer to the fuel source, developers may be able to reduce permitting and grid-connection challenges.
What Comes Next for the Permian?
Robert Kachmar described the basin as a robust resource with room for continued growth. As additional pipelines are constructed, more production can reach markets. At the same time, aging wells are becoming increasingly gas-rich, potentially increasing the amount of natural gas produced alongside oil.
The implications extend beyond West Texas. Permian gas can feed domestic power demand, supply Gulf Coast LNG facilities and ultimately contribute to global energy security.
Europe Faces a Changing Gas Infrastructure Map
The discussion also turned to Europe, where the gas system is undergoing a fundamental transformation. Europe has historically relied heavily on Russian pipeline gas. With Russian flows through Ukraine stopping, infrastructure that once moved gas southward from Russia is increasingly being used in the opposite direction.
The panel highlighted Europe’s emerging “vertical corridor,” connecting countries including Greece, Bulgaria, Romania, Hungary and Slovakia. Infrastructure originally designed to transport Russian gas southward is increasingly capable of moving gas northward from alternative sources.
Looking Beyond the Headlines
A new pipeline can change regional basis relationships. Rising LNG exports can change the value of gas hundreds or thousands of miles from the production basin. Data center development can create entirely new demand centers. Meanwhile, geopolitical events can suddenly change the value of infrastructure that was originally designed for a completely different purpose.
For analysts, producers, pipeline developers and investors, understanding those relationships requires more than identifying where supply and demand are growing. It requires understanding how molecules actually move through the system and how that system responds when assumptions change.
RBAC’s GPCM® Market Simulator for North American Gas and LNG™ and G2M2® Market Simulator for Global Gas and LNG™ are designed to examine these interconnected relationships through market simulation and scenario analysis. RBAC’s models allow users to evaluate how changes in production, infrastructure, demand, policy and other market conditions can affect gas flows and prices across interconnected markets.
RBAC, Inc. has been the leading provider of market fundamental analysis tools used by the energy industry and related government agencies for over two decades. The GPCM® Market Simulator for North American Gas and LNG™ is the most widely used natural gas market modeling system in North America. RBAC’s G2M2® Market Simulator for Global Gas and LNG™ has been instrumental in understanding evolving global gas and LNG dynamics and is vital in fully understanding the interrelationship between the North American and global gas markets.
