Two weeks ago, Tallgrass Energy, operator of the Rockies Express Pipeline (REX) received final approval to begin construction on its Zone 3 Capacity Enhancement (Z3CE) expansion project, its second east-to-west flow capacity expansion in as many years. The last one went into service last August and has been running at capacity near 1.8 Bcf/d for much of winter 2015-16. The Z3CE expansion will again increase westbound takeaway capacity on the mainline from the heart of the Marcellus/Utica shale by another 0.8 Bcf/d, on top of the existing 1.8 Bcf/d. Today we bring you the up-to-the-minute scoop on the latest REX expansion.
The REX westbound capacity expansions are a part of a quiet revolution happening in the U.S. physical gas market that will ultimately make flow patterns and basis relationship virtually unrecognizable to industry veterans. The U.S. gas pipeline network, particularly in the Eastern U.S., is in the midst of the biggest infrastructure overhaul in many decades, designed to reverse traditional flow patterns out of the Northeast Region and allow Marcellus/Utica shale gas to target growing and new demand markets primarily in the Southeast U.S. We first talked about the reversal of REX in our 2013 series titled Get Back to Where You Once Belonged, and more recently in our blog series titled End of Displacement. In the latter series, we laid out why outbound pipeline capacity is especially critical for the Northeast natural gas market to balance this summer and beyond. Without sufficient takeaway capacity, the Northeast is drowning in supply. Regional demand has not kept pace with increasing supply, and despite the rock-bottom prices that we’re seeing this winter (Thursday NGI price/MMbtu: Dominion South $1.09, Columbia Gas $1.65, Tennessee Zone 4 Marcellus $1.05, Transco Zone 6 New York $1.17), production has only continued climbing (see We Can Work It Out for our latest blog on production trends). Thus increased outflows from the Northeast to other markets will continue to be an essential outlet for Northeast gas and regional producers’ ability to improve their rates of return. Over the next few years there are several pipelines looking to reverse capacity out of the Northeast to capture these flows (we detailed these in They Long to Be Close to You). And, REX’s westbound capacity expansions are the most significant of those, not only volume-wise, but also because the pipeline’s molecules touch nearly every U.S. region via interconnects with many other major long-haul gas pipelines.
In Big Deal! REX to Open the Floodgates, we recapped how REX has evolved from its inception as an eastbound pipeline for Rockies gas producers, transitioning to today’s REX reversal efforts, including the build-out and expansion of the Seneca Lateral, the third-party receipt point connections near Clarington, OH, and the East-to-West (E2W) expansion. Then, last August, in Waiting For a REX Like You, we documented the in-service of E2W, which expanded the mainline’s westbound firm transportation capacity by 1.2 Bcf/d in its Zone 3 (between its eastern terminus point in Clarington, OH and Moultrie County, IL), and brought the total westbound firm capacity in the zone to 1.8 Bcf/d for that stretch of REX. Since then, as we detailed in Part 1 of Go West, Young Molecule, westbound flows on REX have ramped up to fill that capacity of 1.8 Bcf/d and already basis and delivery flows have begun to adapt to this new reality (more on this in a later series blog). But before the E2W project was even complete, it was clear that production would continue outstripping takeaway capacity, and REX already had begun its regulatory process for further expansion.
Today we focus on the next phase of the REX expansion – the Zone 3 Capacity Enhancement project (REX Z3CE). This latest expansion will mark another significant level shift in the progression of the REX flow reversal.