Sept 6 (Reuters) - Spot natural gas prices at the Waha hub in the Permian basin in West Texas rose to their highest since March as Kinder Morgan Inc's new Gulf Coast Express pipeline prepares to enter service over the next month.
The $1.75 billion Gulf Coast Express will provide much-needed takeaway capacity from the Permian region, where prices turned negative earlier this year and producers have flared record amounts of gas.
Since deliveries started to flow into the Gulf Coast Express in early August, next-day prices at Waha <NG-WAH-WTX-SNL> rose as high as $2.10 per million British thermal units (mmBtu) on Aug. 28, their highest since March, according to data from Refinitiv.
That cut the premium of next-day gas at the U.S. Henry Hub <NG-W-HH-SNL> benchmark in Louisiana over Waha to a monthly low of $1.30 per mmBtu in August, its lowest since January when the spread was just 92 cents.
The Gulf Coast Express is designed to deliver about 2.0 billion cubic feet per day (bcfd) of gas from the Permian basin east to the Agua Dulce receipt point near the Texas Gulf Coast.
During the first eight months of 2019, Waha spot prices, which touched a record low of negative $9 in April, averaged just 73 cents. That compares with an average of $2.10 in 2018 and a five-year (2014-2018) average of $2.80.
Prices in the Permian have dropped this year because there was not enough pipeline capacity to transport record and growing amounts of gas being produced in the basin. That gas is associated with the region's oil output.
Gas production in the Permian is expected to rise to a record 14.9 bcfd in September 2019, up more than 20% from the same month last year, according to U.S. Energy Information Administration (EIA) projections.
Crude oil takeaway capacity in the Permian expanded in early 2019, but Gulf Coast Express is the first significant gas pipe to enter service this year.
With no new gas pipes, drillers in the Permian flared record amounts of gas during the first quarter of 2019 as their oil production rose to all-time highs, according to data from Rystad Energy.
After Gulf Coast Express enters service, several other gas pipes are expected to be built, which could further reduce Henry Hub's premium over Waha.
Those pipes include Kinder Morgan's 2.1-bcfd Permian Highway in 2020 and MPLX LP's 2.0-bcfd Whistler in 2021.
(Reporting by Scott DiSavino Editing by Marguerita Choy)