Tallgrass Energy and DCP Midstream’s Cheyenne Connector pipeline and the REX Cheyenne Hub Enhancement projects are set to begin operations tomorrow, June 26, after receiving FERC approval yesterday. The natural gas projects will add takeaway capacity out of the Denver-Julesburg and Powder River production basins. For Tallgrass, the incremental capacity has the potential to increase utilization of its Rockies Express Pipeline (REX), which has struggled to fully recontract its mainline capacity after a slew of long-term contracts expired last year. For gas producers, the new capacity and hub upgrades mean an alternative route out of the core DJ with farther-reaching destination options for gas flows, including access to REX and its growing direct-connect load and numerous third-party interconnects in the Midcontinent/Midwest. About 600 MMcf/d in firm contracts will kick in for each project with the start of service, but given that Niobrara gas production is down and there’s likely no new production waiting behind the capacity, gas flows on the two projects may come down to economics. In today’s blog, we provide an update on the projects in the context of today’s uncertain market.
We’ve written previously about Tallgrass’s efforts to revamp utilization of the westernmost leg of its cross-country REX pipeline and, more specifically, REX’s interconnect capacity at Cheyenne Hub, which is one of the easternmost hubs in the Rockies and the gateway for Rockies gas moving east to the Midcontinent/Midwest (see Rox and Roll and the Express Yourself blog series). Despite Cheyenne Hub’s numerous pipeline interconnects, including REX, and its proximity to Weld County, CO, the epicenter of drilling activity and production growth in the DJ Basin (shown in Figure 1), Cheyenne Hub has had a limited market reach, primarily serving intraregional demand or markets in immediately adjacent states. That’s in large part because the interconnecting pipelines at the hub all operate at a lower pressure than REX, restricting REX’s capability at the hub to just 28 MMcf/d of firm receipt capacity. In addition to that issue, historically, there has been only one pipeline — the Colorado Interstate Gas (CIG) — that serves that prolific Weld County area.
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