Natural gas prices in the Permian basin rose recently ahead of the start-up of Kinder Morgan's Gulf Coast Express pipeline, due on line in the coming weeks.

Prices had plummeted in the Permian amid a glut of gas and limited infrastructure, occasionally stepping into negative territory.

But the US Energy Information Administration noted recently that spot prices at the Waha hub in western Texas closed at $1.55 per million British thermal units on 15 August, the highest price since March this year.

"This price increase coincides with the 2 billion cubic feet per day Gulf Coast Express Pipeline preparing to enter service," said the EIA.

"GCX will provide much-needed additional natural gas take-away pipeline capacity in the Permian region of western Texas and southeastern New Mexico."

More recently, Reuters reported that prices at Waha rose as high as $2.10 per million Btu on 28 August.

As a result, the August premium of next-day gas at the US Henry Hub benchmark in Louisiana plunged to $1.30 per million Btu, its lowest since January when the spread was just 92 cents.

The swing is significant, considering the Waha spot price averaged just 65 cents per million Btu in the first eight months of 2019, according to the EIA.

And, to the relief of Permian producers, the price increase is likely to last, according to RS Energy Group director Jen Snyder.

"We think the price improvement is here to stay and you'll likely see another step up in price when Gulf Coast Express reaches its full capacity," Snyder told Upstream.

While previous pipelines in the gassy plays of the north-east US filled relatively quickly, Snyder said it is a different scenario in the Permian, where natural gas is a byproduct of oil production.

"There's not an additional 2 Bcf per day of gas that's waiting to come on line when Gulf Coast Express hits its full volume," she said.

"So it will take some time to build gas volumes into the new export capacity out of the Permian."

In addition to Gulf Coast Express, a number of new pipelines are expected to come on line in the next few years to ease bottlenecks in the Permian.

Kinder Morgan plans two other 2 billion cfd projects and a consortium including private players MPLX and WhiteWater Midstream recently sanctioned their own 2 billion cfd pipeline out of the Permian.

While the influx into the market of stranded Permian gas had been perceived as a negative for prices at the Henry Hub, the slower-than expected build may now help to support prices at the US benchmark, according to Snyder.

"The fact that the first increments of Gulf Coast Express are on line and Henry Hub prices are strengthening is kind of a sign that there's maybe less of a chance that that 2 billion cfd slug of gas hits the Gulf Coast immediately or hits the market immediately," she said.

In addition, the increase in takeaway from the Permian is hitting at a time when operators in North America's major gas plays including Appalachia, the Haynesville of Louisiana and Texas and the Scoop and Stack of Oklahoma are cutting drilling activity because of low prices.

That could result in a tighter natural gas market in 2020 than originally feared.

"It looks like we're getting this additional Permian gas, but the production changes overall and the production trends overall look much more muted because of this decline in activity outside of the Permian," she said.

"The declines in activity in other plays are making up for this added Permian gas at this point."

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Pipeline pumps up Permian prices