Key Takeaways:
A pair of new pipelines has pulled Permian Basin natural-gas prices out of negative territory, but analysts warn the relief may be short-lived as planned drilling threatens to overwhelm the added capacity.
The Permian Basin's natural-gas prices climbed above zero in recent weeks after Kinder Morgan and Energy Transfer brought new pipeline capacity online, ending a first-half supply glut that forced producers to pay buyers as much as $7.95 per million British thermal units to take the fuel.
"The big question is how quickly gas production grows into the new capacity," said Rob Wilson, president of energy data firm East Daley Analytics. "Gas tends to grow faster than crude in the Permian."
At the region's Waha trading hub, gas prices averaged negative $2.19 per million British thermal units during the first six months of 2026, compared with $2.72 at the Henry Hub benchmark in Louisiana on the same day in late April when Waha hit its record low of negative $7.95. Diamondback Energy, one of the Permian's largest producers, sold oil for an average $96.82 a barrel in the quarter ended June 30 but fetched negative $2.15 per thousand cubic feet for its gas — and negative $0.34 even after hedging.
The congestion threatens to constrain the Permian, which accounts for about 20 percent of U.S. gas production and has driven most of the domestic supply growth that kept prices low and stable in recent years. With the Strait of Hormuz closure keeping oil prices elevated and encouraging continued drilling, the basin could quickly refill the new pipelines before the next batch of egress comes online toward the end of the decade.
The Kinder Morgan Gulf Coast Express expansion and Energy Transfer's 400-mile Hugh Brinson pipeline to the Dallas area have provided temporary relief, lifting Waha prices to about 40 percent below the national benchmark. A third conduit, the Blackcomb pipeline being built by a consortium including Targa Resources, is expected to add further egress when it opens later this year.
Pipeline Capacity Runs Ahead of Drilling Plans
Permian gas production grew at less than half the rate of the past few years during the first half of 2026, according to Bank of America analysts, as negative prices prompted some drillers to turn rigs away from gassier prospects. Devon Energy and APA curtailed output. But the curtailments suggest it will not take long to fill the new lines, Wilson said. "The gas is there," he said. "It's ready to hit the pipes."
The Permian is unique in that producers typically underwrite drilling based on oil prices, treating the associated gas as a costless byproduct. That dynamic has created a high tolerance for low prices and situations where gas is treated more like a nuisance than a coveted fuel. Some drillers flare or vent the excess, though regulatory limits constrain how much they can burn.
Producers are exploring ways to use more gas within the basin rather than risk having to pay buyers to take it away. Matador Resources last month touted savings from using its own well gas to run drilling equipment. Chevron said it would build a gas-fueled power plant in Reeves County to supply electricity to a large data center Microsoft has planned nearby.
"It's arguably going to continue to get worse before it gets better as we think about the cadence of volume growth that we're seeing on our system and that we're seeing more broadly in the Permian and how that interplays with not enough takeaway capacity," Jennifer Kneale, president of Permian pipeline operator Targa Resources, told investors this spring.
The consequences extend beyond Texas. Ample natural gas from the Permian has underpinned the artificial-intelligence boom by keeping electricity costs low for data centers, while also supporting U.S. energy exports through growing LNG shipments. If pipeline bottlenecks cap Permian output, those ambitions could face headwinds.
This article is for informational purposes only and does not constitute investment advice.
