It's been a long time comin' - New REX Zone 3 Capacity Reveals the Future of Northeast Gas Markets

Tallgrass Energy’s Rockies Express Pipeline earlier this month (on January 6, 2017) brought into service the last 350 MMcf/d of its 800-MMcf/d Zone 3 Capacity Enhancement Project, boosting the line’s east-to-west takeaway capacity out of Ohio to 2.6 Bcf/d, up 45% from 1.8 Bcf/d previously. The new, fully-subscribed capacity, designed to serve Marcellus/Utica producers, filled up almost instantaneously.  But unlike previous capacity additions, Northeast production did not increase.  Instead the gas came from other pipelines.   This development provides an early indication of what the new capacity will mean for producers, flows and prices. In today’s blog, we delve into pipeline flow data to understand the early impacts of the new takeaway capacity.

Since it first began bi-directional flow in its Zone 3 segment in 2014, REX has been an integral piece of the broader revolution to reverse traditional north and eastbound flow patterns to instead move gas out of the supply-rich, capacity-constrained Marcellus/Utica production region, one that we’ve been following closely in the RBN blogosphere (see Get Back to Where You Once Belonged and  End of Displacement). Just about all the long-haul pipes that traditionally have flowed gas into the Northeast have at least partially reversed flows in recent years to allow Marcellus/Utica producers to target growing demand markets along the Gulf Coast and in Mexico. REX’s Zone 3 expansion has been the most significant of those, in terms of sheer volume, but also because its 15-plus interconnects with major long-haul pipelines (in Zone 3 alone) essentially make it a massive header system with access to just about every other U.S. market. 

The completion of this latest expansion—the Zone 3 Capacity Enhancement Project (Z3CE)—marks the last of a series of planned REX expansions. Prior to Z3CE, the last big capacity increase on REX came in August 2015 with the Zone 3 East-to-West (E2W) expansion, which tripled westbound throughput on REX to a design capacity of 1.8 Bcf/d from Clarington, OH (red box in Figure 1). Westbound flows into Zone 3 at the time already were up to right around 1.0 Bcf/d before E2W began service, and they didn’t grow much from there initially even as the new capacity came online. That’s because flows depend on more than just the mainline throughput capacity; there’s also receipt capacity (i.e. the ability to receive supply through third-party receipt points), the availability of supply to get on the pipe, and of course access and availability of demand markets downstream, among other factors.