Walking Tall - Tallgrass's Winning Strategy for the Rockies Express (REX) Pipeline

For much of the time since it began operations, the capacity on Tallgrass Energy’s Rockies Express Pipeline has been contracted and utilized at high rates for long-haul flows east from the Rockies to the Midwest. Specifically, the pipeline consistently has had between 1.3 and 1.8 Bcf/d out of a total 1.8 Bcf/d contracted, mostly for 10-year terms. That all changed in the past year, however, as the original long-term shipper contracts that took effect in 2009 came due and the pipeline experienced a major decontracting, with the bulk of the contracts rolling off in November 2019. Since then, a number of open seasons led to a partial recontracting. Tallgrass also is developing two projects — Cheyenne Connector and REX Cheyenne Hub Enhancement — that could increase flows to REX later this year. Today, we continue a series providing an update on eastbound pipeline contracts and gas flows on REX.

The Rockies Express Pipeline (REX) has been transformative. Originally built as a west-to-east pipeline, its main job was to give Rockies natural gas a way to reach premium markets in the Midwest and the Northeast. But by the time it was constructed, surging production in the Marcellus and Utica shales had overwhelmed the need for Rockies gas in the East, and REX evolved to become a major outlet for Appalachian gas to the Midcontinent. Now, REX has moved beyond its first two incarnations, and its owner, Tallgrass Energy, has announced plans to build a greenfield pipeline that would connect REX and the markets it serves with the prolific Permian Basin, 900 miles south of the existing mainline. In today’s RBN blog, we’ll discuss REX’s history, where it stands today, and how a new pipeline connection with the Permian might fit into its evolving strategy. 

After a major decontracting and partial recontracting last fall, Tallgrass Energy’s Rockies Express Pipeline headed into 2020 with 839 MMcf/d in firm, long-haul commitments for natural gas moving east out of the Rockies for delivery into the Midwest. That volume is down from 1.3-1.8 MMcf/d in firm commitments previously. The contracted volume is also much lower than the peak — and even the average — historical gas flows on the route to the Midwest markets in recent years. At the same time, Tallgrass’s Cheyenne Connector pipeline and Cheyenne Hub Enhancement projects are expected to bring as much as 800 MMcf/d of new firm gas supply from the Denver-Julesburg (D-J) Basin to the REX mainline at Cheyenne Hub. What will these changes mean for Rockies’ eastbound flows and prices? Today, we wrap up our series on REX’s recontracting with an assessment of how the recent contract changes could affect REX gas flows.