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.
As we recounted in Part 1, REX’s long-term success in its 10-plus years of operation has depended on its ability to morph in response to the rapid-fire changes that have buffeted the gas market over the past decade. These changes primarily have been driven by the Shale Revolution, which has resulted in a surge of gas supplies in the Eastern U.S. and increasing gas-on-gas competition across North America.
REX, which was originally conceived as an eastbound-only pipeline stretching from the Rockies to the Northeast, has undergone a number of transformations to adapt to the shifting gas flow patterns and price relationships, including reversing flows on the eastern zone of the pipe to move gas west from the Marcellus/Utica shales. The large-diameter, long-haul pipeline has evolved into a robust bidirectional cross-country system that behaves like a massive header system for interregional flows via its numerous interconnects. As such, it has remained an integral outlet for both Rockies and Appalachian producers and has enjoyed high utilization rates on both ends of the pipe — that is, until last fall. In 2019, the bulk of its legacy long-term contracts for eastbound flows out of the Rockies expired, with the last of them rolling off on November 11, 2019.
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