Brand New Way - Tallgrass Gears Up for DJ Production Growth with Cheyenne Hub Expansion Plans

Crude oil and associated gas production volumes from the Denver-Julesburg (DJ) play in the Niobrara Shale have been climbing in recent months, and drilling activity suggests more growth is on the way. In response, Tallgrass Energy Partners last month proposed two related projects — the Cheyenne Connector pipeline and REX Cheyenne Hub Enhancement — to increase capacity and liquidity at the Cheyenne Hub, a key trading and pricing location for the DJ basin. The projects potentially would push more gas onto Tallgrass’s bidirectional, cross-country Rockies Express Pipeline (REX) east, in direct competition with other growing supply regions. In today’s blog, we take a closer look at Tallgrass’s plans to increase takeaway capacity out of the DJ basin.

Through the first half of the 2010s, oil production from the Niobrara Shale in Colorado and Wyoming — including the Denver Julesburg (DJ) and Powder River Basin (PRB) plays — rose rapidly. As we covered in our blogs Hey Mr. DJ, Keep Playing That Song, Part 1 and Part 2, by 2014, competition for existing oil pipeline capacity in the region was intensifying and it was clear that more capacity would be needed if the infrastructure in the region was to support more production growth. After oil prices crashed in late 2014, production went into decline as drilling activity was slashed. But new oil pipeline capacity — through a combination of acquisitions, conversions, and new-builds — was already on its way. We detailed this build-out in Colorado (G)Oil, including Tallgrass’s Pony Express Pipeline (see This Pony Knows More Than One Trick).

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Now, in 2017, with oil prices ambling above $50/bbl, the rig count in the DJ has doubled in the past year, and crude oil production has been growing modestly in recent months. Most of the activity in the play is concentrated in super-hot Weld County, CO, where 23 of the DJ Basin’s 26 active rigs are operating. In terms of output, data from the Energy Information Administration (EIA) shows oil production in Colorado averaged 342 Mb/d this past July (the latest EIA data available), which is up 17% from the recent low of 292 Mb/d in February 2017, and just under the all-time monthly record of 346 Mb/d (set in August 2015, before the declines took hold). Moreover, with oil pipeline takeaway capacity additions over the past few years, there’s ample room for it to grow further and bring with it more associated gas volumes. There lies the impetus behind Tallgrass’s Cheyenne Connector and REX Cheyenne Hub Enhancement projects.

The REX Cheyenne Hub, located in the heart of the DJ, comprises interconnects of seven pipeline systems that converge in northern Weld County, CO, near the northeastern border of Colorado and Wyoming. Those include Tallgrass’s REX mainline going east and west, Tallgrass Interstate Gas Transmission system (TIGT), Tallgrass’s Trailblazer, Kinder Morgan’s Cheyenne Plains, Colorado Interstate Gas (CIG) and Wyoming Interstate Co. (WIC) pipeline systems, as well as Xcel Energy’s Public Service Co. (PSCO). Historically, REX’s pool point at the Cheyenne Hub has received little to no supply from the DJ, because the interconnecting pipelines all operate at a lower pressure than REX. Tallgrass is looking to change that with its REX Cheyenne Hub Enhancement project, which proposes booster compression and modifications to its header system and interconnects in order to allow bidirectional flow between REX and the third-party pipelines at the hub. 

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