This is a Permian basin commodity price chart prepared by Mike Banschbach, an indepentent gas, crude, and NGL marketer in Midland.
Waha has already had 2 negative price days in May. The Waha basis is negative thus far for the month of May and it was negative for all of April. But the Mt Belvieu price for NGLs/gallon and the West Texas $/bbl and % of crude price should give a pretty good idea of the the largest oil and natural gas producers are netting for production.
US drillers produce over 6 mm bpd of of plant condensates and around 4 mm bpd from refineries. When the price of 10 mm bpd NGL production falls by -55% it is a serious cash flow fall. No OPEC+ can help this. And it is not over according to Heinrich. We could see negative pricing fo NGLs over the summer and this will force producers deeply cut rig count through the summer.
As the media concentrate on oil and transportation fuels, the rreality is that the real action actions occurs in the NGL market. Shale production has barely increased WTI production, yet NGL production has tripled resulting in a vast expansion of the chemical feedstock/home cooking/ corndrying supply and NGLa are limited for transportation fuels.
The worldwide market cannot absorb more than 25 mm bpd of condensates therefore the volitility of NGLs is much greater than for transportation fuels. This will also impact transportation fuels as these prices will force substitutions (butanes for heating oil).
These cycles over time are more and more extreme to the upside yet also to the downside.
Propane inventoriesare at record levels +90% higher than last year and higher than during the COVID recession and will likely reach record levels over the summer.
The last think producers want is to pay for getting rid of excess NGLs. Negative pricing will force producers to reduce drilling rigs drastically.
Just for context: The US NGL market is 3.3 bn bbls/year. Assuming $100/bbl the market has been around $300 bn. When prices go close to zero and the chances for this are high, this will be -$300 bn less cash flow for for producers, REGARDLESS OF THE OIL PRICE.
The chart tells it all. In any previous cycle M2 monetary growth (blue) and bank deposits (red) surged when inflation (green) has been falling providing plenty of liquidity for a recovery. Yet this cycle, liquidity slumped, preparing for a deep recession.
This cycle is definitely different.
These are the top five leading producers of natural gas in the Permian basin. Th0cers of oil in the Permian basin is almost an identical list EXCEPT that Diamondback drops out and is replaced by Devon Energy.
Looks like 2023 might set the stage for 2024.
Thanks John; this is very good.
It was always a terrible bet that higher oil prices would translate to more supply, or steady supply in boundary defined, depletion gas driven shale containers. Nobody predicting that understood the role that GOR would play in future oil supply. I think we will see rigs go to the barn now all summer.
As gassy oil wells become oily gas wells what the US tight oil industry needs now is much higher natural gas prices. 2023-2024 is shaping up to be a banter year, as you said.
Very important insights.