Oil at $96 spurs Permian drilling as associated gas sells at a loss
New Permian pipelines face quick fill-up as drilling surges, analysts say
America’s most prolific oil field spent the first half of 2026 producing natural gas that nobody wanted.
Prices at the Permian Basin’s Waha trading hub averaged negative $2.19 per million British thermal units from January through June, according to data cited by The Wall Street Journal. In late April, when oil prices neared $100 a barrel amid the Persian Gulf conflict, the gas price hit a record low of negative $7.95 per million BTU. The same day, the national benchmark at Henry Hub in Louisiana traded at $2.72.
The negative pricing meant producers had to pay midstream companies to take their gas because pipeline capacity out of the basin was insufficient to reach buyers in other regions.
New infrastructure this summer has lifted Permian gas out of negative territory. Kinder Morgan added capacity to its Gulf Coast Express pipeline, which runs roughly 500 miles toward the South Texas shore, and Energy Transfer’s 400-mile Hugh Brinson pipeline to the Dallas area began operating. A larger project, the Blackcomb pipeline being built by a consortium including Targa Resources, is expected to add egress later this year.
Still, Permian gas prices remain about 40% below the Henry Hub benchmark, reflecting lingering congestion.
The structural problem stems from how the Permian works. Drillers there typically underwrite wells based on oil prices, treating the natural gas they extract as a byproduct. That creates a high tolerance for low gas prices — and for situations where gas becomes a nuisance rather than a revenue stream.
Diamondback Energy, one of the Permian’s top producers, said last week that it sold oil for an average $96.82 a barrel during the quarter that ended June 30, the highest price in four years. Gas sales averaged negative $2.15 per thousand cubic feet, which is roughly equivalent to the Waha benchmark. Even after hedging, the company said gas sales remained negative 34 cents.
The Permian now accounts for about 20% of U.S. natural gas production and has driven most of the domestic supply growth in recent years. That growth has helped keep national gas prices low and stable, supported the expansion of gas-fired power generation, and fed surging demand from liquefied natural gas export terminals and data centers powering the artificial-intelligence boom.
“It’s arguably going to continue to get worse before it gets better as we think about the cadence of volume growth that we’re seeing on our system and that we’re seeing more broadly in the Permian and how that interplays with not enough takeaway capacity,” Jennifer Kneale, president of Permian pipeline operator Targa Resources, told investors this spring.
Some producers responded to negative pricing by curtailing output. Devon Energy and APA reduced production. Others turned drilling rigs away from their gassier prospects. Bank of America analysts said Permian gas production increased during the first half of this year at less than half the rate it had been growing in recent years.
Still, the curtailments suggest it won’t take long to fill the new pipelines, analysts said. If the Strait of Hormuz remains closed and high oil prices encourage producers to keep drilling, the Permian could quickly become flooded with gas again.
“The big question is how quickly gas production grows into the new capacity,” said Rob Wilson, president of energy data firm East Daley Analytics. “Gas tends to grow faster than crude in the Permian.”
Some producers are finding ways to use their gas within the basin rather than pay to move it. Matador Resources said last month it achieved significant savings by using gas from its own wells, rather than purchased fuel, to run drilling equipment. Chevron said it would build a gas-fueled power plant in Reeves County, Texas, and feed electricity to a data center Microsoft has planned nearby.
“The gas is there,” Wilson said. “It’s ready to hit the pipes.”