Negative Prices, Rising Flaring Signal Pipeline Gridlock in Permian

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Previously, we reported that natural gas at the Waha hub was selling for near-zero or sub-zero prices for much of 2024 thanks in large part to excess natural gas production in the Permian Basin coupled with limited takeaway capacity due to a shortage of gas pipelines. Indeed, prices at the hub spent half the year in negative territory, sinking to all-time low -$7/mmbtu at the end of August.

This has become a recurrent challenge in recent years ever since the Permian Shale boom led to a surge in associated gas production. Consequently, Permian gas infrastructure became saturated, sometimes forcing producers to pay for someone to take their gas so that they can focus on something more valuable: crude oil. Unfortunately, the Permian continues to struggle with a deluge of gas in the current year, despite the startup of the pivotal Matterhorn Express in 2024.

And now the Permian Basin has to contend with a major environmental hazard: gas flaring.

June 2025 saw the third consecutive monthly uptick in natural gas flaring across the basin as production continues to outpace existing pipeline takeaway capacity.

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Production growth in the Permian continues to challenge existing infrastructure, leading to price volatility and, at times, negative gas prices. According to East Daley Analytics’ latest model, current Permian gas production is well above total effective egress capacity, leading to the flaring of nearly 500 million cubic feet of gas per day, equivalent to the emissions profile of 2.2 million cars if extended over the course of one year.

Natural gas flaring in the United States is heavily regulated and significantly reduced in many areas. While routine flaring is prohibited in some states and on federal lands, exceptions and variances are often granted for safety, operational needs, or emergencies. The U.S. has also committed to the global initiative of ending routine flaring by 2030.

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Meanwhile, upcoming projects like the Palo Duro Oklahoma pipeline and the Blackcomb will take time to take effect while pipeline operators such as Kinder Morgan (NYSE:KMI) and Targa Resources (NYSE:TRGP) are racing against rising environmental scrutiny and Texas Railroad Commission leniency on flaring permits. Last month, Midstream II LLC launched a binding open season as it looks to gauge shipper demand for its proposed 275-mile Palo Duro (PD) natural gas pipeline that will link residue markets at Waha with Mid-Continent outlets in the Anadarko Basin.

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