Go West, Young Molecule – Natural Gas Flows on REX’s Zone 3 East-to-West Expansion

Tallgrass Energy’s Rockies Express Pipeline (REX) last week received final approval to begin construction on its Zone 3 Capacity Enhancement expansion project (Z3CE), which would expand east-to-west capacity out of the Marcellus/Utica shale production area to a record 2.6 Bcf/d. This project comes on the heels of REX’s East-to-West expansion (E2W), which came online last August and in one fell swoop gave Northeast producers their first substantial westbound firm forward-haul transportation capacity, totaling a full 1.8 Bcf/d. The upcoming Z3CE capacity (0.8 Bcf/d) will mark yet another milestone in the Great Pipeline Reversal that’s expected to ease supply congestion in the Northeast and support beleaguered Marcellus/Utica pricing points. That new capacity is not due in-service until late 2016. But now with nearly a full winter’s worth of pipeline flow data for the first E2W expansion, we can get a preview of potential impacts of the additional capacity on flows and pricing. Today we look at winter-to-date gas flows on REX and what they tell us about the Marcellus/Utica market.

Last June, in Big Deal! REX to Open the Floodgates, we recapped REX’s inception as an eastbound pipeline for Rockies gas producers to send their gas to higher priced Northeast markets, and then covered the impact that shale supply growth and price discounts in the Northeast have had on the region – culminating in REX, along with other Northeast-bound pipes, to provide for flows moving in the opposite direction. In the case of REX, that means it now receives supply near Clarington, OH and the general vicinity, and then moves it west to interconnect with other interstate pipelines along its easternmost Zone 3 leg. We detailed the REX reversal efforts and impacts prior to E2W going into service, including the build-out and expansion of the Seneca Lateral and third-party receipt point connections near Clarington, OH. Until that point, design capacity and long-term shipper contracts for such westbound flows were limited to 600 MMcf/d, though operationally, REX had been flowing close to or more than 1.0 Bcf/d of Marcellus and Utica supply west since February 2015.

UPDATE: On Thursday, Natural Gas Intelligence reported the Federal Energy Regulatory Commission (FERC) has approved Natural Gas Pipeline Company of America LLC's (NGPL) request for certificate authorization for the Chicago Market Expansion Project. The project aims to bring Marcellus/Utica gas supply moving west from Ohio on the Rockies Express Pipeline (REX) pipeline to end-use markets in Chicago and the surrounding area. The project will expand the northbound firm transportation capacity on NGPL’s Gulf Coast mainline system from the REX-NGPL interconnect in Moultrie County, IL, by an initial 238 MMcf/d. NGPL has binding commitments for the capacity from four shippers: Antero Resources, Nicor Gas, North Shore Gas and Occidental Energy Marketing Inc. The incremental capacity is due in-service in November 2016.

Then, last fall (August 1, 2015), REX flipped the switch on new E2W capacity, and just like that an incremental 1.2 Bcf/d of firm contracts kicked in for “forward-haul” capacity westbound from the Clarington, OH area to Moultrie County, IL. We documented the in-service of that expansion in Waiting For a REX Like You. This capacity was in addition to the 600 MMcf/d of westbound commitments already in place for supply from MarkWest’s Seneca processing plant via the Seneca Lateral. Together, they brought the total Zone 3 east-to-west contracted capacity to a total 1.8 Bcf/d, backed by 20-year firm contracts for east-to-west flows from four shippers besides MarkWest:  American Energy Appalachia, EQT Energy, Gulfport Energy Corp, and Rice Energy. In addition to expanding bidirectional capacity of the mainline pipe in its Zone 3, E2W also increased delivery point capacity at interconnects with ANR in Shelby, IN, Panhandle Eastern Pipe Line in Putnam, IN, Trunkline in Douglas County, IL and Midwestern in Edgar, IL, and Natural Gas Pipe Line of America (NGPL) in Moultrie, IL.

Since then, westbound flows on REX have ramped up to fill that capacity near 1.8 Bcf/d and, to a limited extent, delivery flows and price relationships have begun to adapt to this new reality. As this is the first winter with the full E2W firm capacity, we can learn a lot about what that new reality will look like by analyzing pipeline flows and pricing data.

It has been some time since we wrote about the E2W expansion. So before we get to flows, we include the REX Zone 3 map in Figure 1 below for easy reference. The pink squares along the pipe show the location of existing compressor stations, while various colored dots/labels designate interconnects with other pipes. The pink dots/labels show points where REX can receive gas, the blue dots/labels are points where REX can deliver to other pipelines and facilities.  The two purple dots/labels designate bi-directional receipt and delivery capabilities. The portion of Zone 3 most affected by the E2W project is highlighted by the gray shaded area between Clarington, OH and Moultrie, IL.