Two years ago, Russia invaded Ukraine and restricted natural gas supplies to many European countries, sending natural gas prices soaring and terrifying Western leaders.
The fuel is now so plentiful that some U.S. energy producers are paying other companies to steal it. In West Texas, home to the Permian Basin, the largest U.S. oil field, natural gas prices trade below zero most of the year.
Companies operating in the region mainly drill for crude oil, but natural gas typically comes out of the ground along with the oil — so much so that on some days drillers run out of space to store it and pipeline capacity to transport it to where it is needed, such as the Gulf Coast and California.
The result is an inverted local market in which producers pay buyers to take back their precious goods.
In West Texas, natural gas prices have closed negative 57 days through July this year, compared with nine in all of 2023, according to S&P Global Commodity Insights. In May, the spot market, where last-minute transactions take place, closed at minus $4.60 per million British thermal units. On the same day in Florida, natural gas, used for cooking, heating and power generation, traded for more than $3.
“The question in the Permian is where is the gas going?” said Mike Howard, CEO of Howard Energy Partners, a company that processes and transports natural gas.
West Texas gas prices traded in negative territory for nearly half a month in July, finishing at minus 85 cents, according to S&P Global.
Negative prices don't mean most people and businesses are getting paid to flare gas. Retail prices are above zero and can be higher in some places. Gas prices in New England soared to more than $18 per million British thermal units in January, according to the federal Energy Information Administration. Buyers in Japan have been paying about $12 for liquefied natural gas recently.
The problem is getting Texas' natural gas gushes to customers.
Many producers are hopeful that Permian natural gas prices will recover once a new pipeline to the Houston area begins operating, possibly later this year.
For now, fuel producers are often paying other companies to take the gas in. Negative gas prices are an extension of what happened briefly in April 2020, when the price of major U.S. crude oil plummeted to minus $37.63 a barrel as the pandemic spread.
Negative prices are becoming more common across the energy industry, including in electricity markets, highlighting a major challenge in the transition to cleaner energy to address climate change. In many places, it's often easier to dig a well or build a solar or wind farm than it is to lay a pipeline or install a transmission line.
In Southern California, wholesale electricity prices were negative about 23% of the time in the first half of 2024, up from 7% a year earlier, according to the Paris-based International Energy Agency.
“We're practically begging people to use that power right now,” said Pedro J. Pizarro, CEO of Edison International, the parent company of utility Southern California Edison.
Negative prices have indirectly helped individuals and businesses.
Xcel Energy, which operates natural-gas-fired power plants in West Texas and eastern New Mexico, gets paid to offload Permian gas. Lower natural-gas prices could mean electric bills for Xcel's residential customers in New Mexico are expected to be about 8% lower on average in August than in July, the company said. Industrial bills are expected to be about 26% lower.
According to the U.S. Energy Information Administration, benchmark gas prices in the United States averaged about $2.10 per million British thermal units in the first half of this year, the lowest average for that period since at least 1997 when adjusted for inflation.
A major challenge for oil and gas companies is that natural gas is extracted as a by-product of oil drilling, so it is produced in large quantities with little regard for price.
The number of wells being fracked each month in the Permian using water and chemicals has remained relatively steady, even as natural gas prices in West Texas have fallen below zero, according to federal data.
With crude oil trading at around $75 a barrel, many producers are making enough profit from the oil that they are willing to take some losses on the gas released from their wells.
But some companies, such as Diamondback Energy Inc., are cutting back on some production because of low natural gas prices. “It would be a shame to continue selling natural gas at or below zero,” Diamondback Inc. President and Chief Financial Officer Kees van't Hoff said on a conference call with financial analysts this week.
Energy companies are pinning their hopes on new natural gas export terminals that will cool the fuel to a liquid for shipping overseas, where it can typically be sold at much higher prices to buyers in Asia and Europe.
“At the end of the day, there's just too much gas,” said Chris O'Sullivan, president of oil and gas company Paloma Resources.
