Two years ago, natural-gas prices surged after Russia invaded Ukraine and restricted supplies of the fuel to many European countries, terrifying Western leaders.
Now, the fuel is so abundant that some U.S. energy producers are often paying other businesses to take it away. Natural gas has traded below zero for much of the year in West Texas, home to the country’s largest oil field, the Permian Basin.
Companies operating in the region are drilling primarily for crude oil, but natural gas typically comes out of the ground with that oil — so much of it that on some days, drillers run out of places to store the gas or the pipeline capacity to send it to the Gulf Coast or California, where there is demand for it.
The result is an upside-down local market where producers are paying buyers to take a valuable commodity.
In West Texas, natural gas closed below zero on 57 days this year through July, up from nine in all of 2023, according to S&P Global Commodity Insights. In May, prices on what’s called the spot market — where last-minute trading happens — closed as low as negative $4.60 per million British thermal units. That same day in Florida, natural gas — used to cook, heat homes and generate electricity — fetched more than $3.
“The story in the Permian is: Where’s the gas going to go?” said Mike Howard, chief executive of Howard Energy Partners, which processes and transports natural gas.
West Texas gas prices ended July at 85 cents below zero, having traded in negative territory for nearly half the month, according to S&P Global.
The negative prices do not mean that most individuals and businesses are being paid to burn gas. Retail prices are above zero and can be high sometimes and in some places. Gas prices in New England spiked to more than $18 per million British thermal units in January, according to the federal Energy Information Administration. Buyers in Japan have recently paid around $12 for liquefied natural gas.
The problem lies in getting the gusher of Texas gas to customers.
Many producers are hopeful that prices of natural gas in the Permian will recover when a new pipeline to the Houston area begins operating, most likely this year.
For now, fuel producers are often paying other businesses to accept the gas. Negative gas prices are an extended version of what happened briefly in April 2020, when the main U.S. crude oil price plunged to negative $37.63 a barrel as the pandemic took hold.
Negative prices are becoming more common across the energy industry, including in electricity markets, highlighting a big challenge in the transition to cleaner forms of energy meant to address climate change. In many places, it’s often easier to drill a well or build a solar or wind farm than it is to lay pipelines or install transmission lines.
In Southern California, wholesale electricity prices were negative for about 23 percent of the time in the first half of 2024, up from 7 percent a year earlier, according to the International Energy Agency, an organization based in Paris.
“You’re begging people to go use that power now,” said Pedro J. Pizarro, chief executive of Edison International, the parent company of the electric utility Southern California Edison.
Below-zero prices have indirectly helped individuals and businesses.
Xcel Energy, which operates natural-gas-fired power plants in West Texas and eastern New Mexico, has been paid to take Permian gas. Negative gas prices will help reduce electricity bills for Xcel’s residential customers in New Mexico, by an average of around 8 percent in August from July, Xcel said. Industrial electricity bills were poised to fall around 26 percent.
Benchmark U.S. gas prices averaged around $2.10 per million British thermal units in the first six months of the year, the lowest average for that period since at least 1997 after being adjusted for inflation, according to the Energy Information Administration.
For oil and gas companies, a big challenge is that a lot of natural gas is being produced with little regard to price because it’s extracted as a byproduct of oil drilling.
Even as natural-gas prices in West Texas fell below zero, the number of wells being fractured with water and chemicals every month in the Permian held relatively steady, federal data show.
With oil trading around $75 a barrel, many producers are making enough money on that commodity that they can lose some money on the gas released by their wells.
However, some companies, like Diamondback Energy, have reduced some production because of low natural gas prices. “It’s a shame that we continue to sell gas near zero or below zero,” Kaes Van’t Hof, the president and chief financial officer of Diamondback, said on a conference call with financial analysts this week.
Energy companies are counting on new natural-gas export terminals, where the fuel is chilled into liquid and shipped overseas. Liquefied gas is generally sold at much higher prices to Asian and European buyers.
“The bottom line is: There’s too much gas,” said Chris O’Sullivan, the president of Paloma Resources, an oil and gas company.