Explainer: Why are natural gas prices in the United States in Texas below zero?

(Reuters) – Unusually, natural gas prices in western Texas in the US are trading in negative territory for more than two weeks, mainly due to a lack of space for the pipeline, forcing some drillers to pay unused gas tanks.

Spot prices on the Waha hub – where gas prices in the Permian Basin are set – have fallen to a record low of minus 4.28 dollars per million from British thermal units last week. Prices are negative in the markets in real time or the next day, since March 22.

WHY IS THERE ANY NATURAL GAS SUPPLY?

The Permian is the largest oil shale deposit in the country, where production now exceeds 4 million barrels per day (bpd). But oil production also produces so-called badociated gas, considered by crude drillers to be a waste to burn or "burn" because there are not enough pipelines to dispose of it.

The construction of new oil and gas pipelines in the Permian has not kept pace with production, which has more than doubled in the past three years, with the United States becoming the world's largest oil producer.

But while oil can be stored in tanks and transported by truck or train, the gas can only be transported by pipeline, burned or, if special equipment is available, reinjected into the ground.

Recently, compressor problems on a pipeline in New Mexico have exacerbated the problem, as they have shut down a key artery for gas.

(GRAPHIC: Natural gas prices in Texas become negative: tmsnrt.rs/2HV1CJY)

HOW MANY GAS IS AVOIDED?

It depends on who you ask. Permian drillers reached a record 0.4 billion cubic feet per day (bcfd) in the third quarter of 2018 and are expected to burn at least 0.6 billion cubic feet by mid-2019, according to Rystad Energy. energy data provider based in Oslo.

One billion cubic feet of gas is enough to power about 5 million American homes for a day.

Permian burning reached 0.15 billion cubic feet per day and 0.11 billion cubic feet in 2017 and 2016, respectively, according to data from the Texas Railroad Commission interpreted by the Environmental Defense Fund (EDF) , an environmental group.

However, EDF estimates that the drillers burn more than the official figures. He used satellite data from the US National Oceanic and Atmospheric Administration to estimate that Permian drillers burned twice as much gas in 2017, or about 0.28 billion cubic feet per day.

The officials of the Texas Railroad Commission were not immediately available for comment.

Can drills burn gas for as long as they wish?

Texas drillers can burn gas for 45 days under an initial flaring license and obtain extensions for up to six months. In Texas, Rystad said he "observed an upward trend" when gas is burned on new wells for four to six months.

Oil drillers who can no longer burn gas have to ship or close wells, but with crude prices having reached their highest levels in five months, drillers do not want to close wells.

DOES IT MEAN THAT ALL PEOPLE WHO WORK PAY SHIPPERS TO TAKE THEIR GAS?

Anyone who ships gas through a pipe must pay the pipeline company for the use of space. Normally, gas producers or their customers pay these costs, but can then sell the gas at the end of the line to make a profit. And shippers with long-term contracts are not affected.

Those who pay negative prices are drillers who had not already engaged in expeditions. Because they do not have the available space on the pipeline, they pay the others who already own it to take this gas, thus losing money despite gas production.

Several new gas pipelines are being prepared to mitigate the constraints, but these projects will not be operational until late 2019 and later.