In the first half of 2023 (1H23), natural gas spot prices at Texas hubs traded closer to the U.S. benchmark Henry Hub than in the second half of 2022 (2H22). The price difference narrowed in 1H23 because both Freeport LNG and the El Paso Natural Gas Company’s Line 2000 returned to service in February 2023 and because natural gas production increased at a slower pace than in 2022. The Houston Ship Channel—a key regional trading hub for natural gas in East Texas—averaged $0.27 per million British thermal units (MMBtu) below the U.S. benchmark Henry Hub price in 1H23. Similarly, the Waha Hub in West Texas, in the Permian Basin production region, averaged $0.85/MMBtu below Henry Hub.

The price differential at both Texas hubs compared with Henry Hub widened significantly in 2H22: the price discount at the Houston Ship Channel was $1.27/MMBtu below the Henry Hub price on average in November, and the Waha Hub traded, on average, $3.02/MMBtu below Henry Hub in December. Several factors increased the price differences between Texas hubs and Henry Hub in 2H22, including:

• High natural gas production

• Additional pipeline takeaway capacity

• The shutdown of Freeport LNG

• Pipeline maintenance and disruptions

Natural gas production in the Permian region increased 15% in 2022 (2.7 billion cubic feet per day [Bcf/d]) from 2021 to an annual record of 21.2 Bcf/d, according to our Drilling Productivity Report. Natural gas production in the Eagle Ford region in Texas rose 14% (0.8 Bcf/d) in 2022.

In 2021, about 8.5 Bcf/d of new natural gas pipeline capacity entered service in Texas. A little less than half (4.1 Bcf/d) of that capacity enabled Permian region producers to increase natural gas deliveries to consuming regions along the Gulf Coast. Increased deliveries from the Permian region, combined with the June 2022 shutdown of the Freeport LNG export terminal, resulted in more natural gas supply than demand in the East Texas market. The differences between the Houston Ship Channel and Henry Hub prices widened in 2H22.

In West Texas, increased takeaway capacity out of the Permian region helped narrow the price difference between the Waha Hub and Henry Hub in 2021. Beginning in 2H22, pipeline maintenance events restricted natural gas flows out of the Permian region intermittently, contributing to price volatility at the Waha Hub. These maintenance events led to large discounts of more than $5.00/MMBtu between September 2022 and January 2023. In addition, pipeline disruptions, such as the shutdown of the El Paso Natural Gas Company’s Line 2000 from August 2021 through February 2023, reduced natural gas flows west out of the Permian region. The reduced flows, combined with other factors, resulted in larger discounts for longer between the Waha Hub and Henry Hub than those between the Houston Ship Channel and the Henry Hub.