Express Yourself, Part 3 - What REX Pipeline's Contract Changes Mean for Gas Flows, Prices

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.

REX historically has been contracted and utilized at high rates for long-haul flows east from the Rockies to the Midwest, and at one point, also into the Northeast. Inflows of Rockies supply into the Northeast have long been displaced by Marcellus/Utica shale gas. Much of Zone 3 — the easternmost third of REX, from eastern Missouri to eastern Ohio — flows westward from the eastern terminus in Clarington, OH. However, as much as nearly 1.8 Bcf/d as of last year was still flowing east from Zone 1 (the westernmost third of the pipe) across the Missouri-Illinois border into the westerly portion of Zone 3. As we said in Part 1, though, about 772 MMcf/d of the system’s legacy long-term contracts for eastbound flows out of the Rockies expired on November 11, 2019.

Some of those expiring commitments — about 333 MMcf/d — were either extended or recontracted for year-round flows, and another 60 MMcf/d was contracted only for winter withdrawal season (November through March), leaving a net 899 MMcf/d in firm commitments for winter and 839 MMcf/d for summer (April through October). The year-round commitments include Ovintiv Marketing (previously Encana Marketing) for ~500-MMcf/d, EOG Resources for 28 MMcf/d, BP Energy for 50 MMcf/d, ConocoPhillips for 55 MMcf/d and Ultra Resources for 200-MMcf/d. And, then, Indiana utility Vectren Energy, contracted for 60 MMcf/d of capacity for the winter months only for deliveries into its local distribution system in Indiana (see the table in Part 2 for terms of each contract).

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