Why are Texas gas prices turning negative while oil prices are rallying?

Negative prices occur because natural gas is produced as an unavoidable byproduct of highly profitable oil drilling in the Permian Basin. When there are not enough pipelines to transport this associated gas to market, a local glut forms, forcing producers to pay others to take the gas rather than shutting down lucrative oil production.

How do producers respond to negative gas prices at the Waha hub?

Producers with high-cost or gas-heavy wells will temporarily shut in or choke back production to avoid paying negative pricing penalties. Larger operators with firm transportation contracts or integrated midstream assets can bypass the local hub and sell their gas at higher prices elsewhere, mitigating the financial impact.

When is the Permian Basin gas pipeline bottleneck expected to ease?

Relief is anticipated in the latter half of 2024 with the startup of the Matterhorn Express Pipeline, which will provide much-needed transport capacity to the Gulf Coast. However, until this and subsequent pipeline projects are fully online, localized price volatility and negative pricing events are likely to persist.

Rigzone · June 8, 2026 (Jun 8) · 1 min read

Texas Gas Drillers Shut Out of Oil Price Rally Shut Off Wells

Analysis

AI-assisted analysis · reviewed by Yuri Kan

A stark divergence in the Permian Basin has forced natural gas producers to shut in wells as negative pricing plagues the Waha hub, contrasting sharply with the lucrative crude oil rally. This supply glut, driven by associated gas produced from oil-directed drilling, highlights the severe infrastructure bottlenecks in West Texas. For global markets, this localized crisis underscores the critical importance of pipeline capacity and the complex dynamics of dual-commodity basins.

Key Facts

Permian Basin operators are actively shutting in natural gas production due to prolonged periods of negative pricing at the Waha hub in West Texas.
The price divergence is driven by booming crude oil production, which generates vast quantities of associated natural gas as a byproduct.
Pipeline capacity constraints have prevented this excess associated gas from reaching premium demand centers along the U.S. Gulf Coast.
Rather than paying midstream operators to take their gas, some drillers are choosing to temporarily choke back or shut in older, gas-heavy wells.
The situation highlights a structural challenge where high oil prices incentivize drilling, which inadvertently worsens the regional natural gas supply glut.

Background & Context

The Permian Basin has evolved into the engine of U.S. oil production, but its rapid growth has consistently outpaced midstream infrastructure. Associated gas—gas produced as a byproduct of oil extraction—must either be transported, flared, or reinjected. With regulatory crackdowns on flaring and limited pipeline capacity to the Gulf Coast, West Texas gas prices frequently dip into negative territory when pipeline maintenance or demand downturns occur, forcing producers to pay buyers to take their product.

Market Impact

This localized supply glut severely impacts pure-play gas producers in the region who lack integrated midstream assets, squeezing their margins to zero or negative territory. Conversely, large diversified operators can absorb these losses due to high crude oil revenues, creating a competitive divide in the basin. On a macro level, these infrastructure bottlenecks temporarily cap the volume of U.S. feedgas available for LNG export terminals, impacting global supply security and highlighting the vulnerability of upstream projects to midstream delays.

What to Watch

Market participants will closely monitor the commissioning of the Matterhorn Express Pipeline, expected to bring relief by late 2024 by moving up to 2.5 billion cubic feet per day of gas to the Gulf Coast. Until this and other pipeline projects become fully operational, Waha prices are expected to remain highly volatile and prone to negative spikes during shoulder seasons. Analysts will also watch for any regulatory shifts regarding flaring permits, which could force further production shut-ins if pipeline capacity remains constrained.

Frequently Asked Questions

Why are Texas gas prices turning negative while oil prices are rallying?: Negative prices occur because natural gas is produced as an unavoidable byproduct of highly profitable oil drilling in the Permian Basin. When there are not enough pipelines to transport this associated gas to market, a local glut forms, forcing producers to pay others to take the gas rather than shutting down lucrative oil production.
How do producers respond to negative gas prices at the Waha hub?: Producers with high-cost or gas-heavy wells will temporarily shut in or choke back production to avoid paying negative pricing penalties. Larger operators with firm transportation contracts or integrated midstream assets can bypass the local hub and sell their gas at higher prices elsewhere, mitigating the financial impact.
When is the Permian Basin gas pipeline bottleneck expected to ease?: Relief is anticipated in the latter half of 2024 with the startup of the Matterhorn Express Pipeline, which will provide much-needed transport capacity to the Gulf Coast. However, until this and subsequent pipeline projects are fully online, localized price volatility and negative pricing events are likely to persist.

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