It's Been a Long Time Comin' - New REX Zone 3 Capacity and Northeast Gas Markets, Part 2

Earlier this month, Tallgrass Energy’s Rockies Express Pipeline (REX) achieved full in-service of its 800-MMcf/d Zone 3 Capacity Enhancement Project, boosting the line’s east-to-west takeaway capacity out of Ohio to 2.6 Bcf/d, up 45% from 1.8 Bcf/d previously. Flows since then provide early indications of how Marcellus/Utica producers and downstream markets are responding to this added ability to move gas west. In today’s blog, we continue our look at how the expansion has impacted flows, this time with a focus on the delivery side.

In Part 1 of It’s Been a Long Time Comin’, we looked at the early impacts of the 800-MMcf/d Zone 3 Capacity Enhancement expansion project (Z3CE) on REX flows and on Northeast natural gas production as a whole. REX has been in the business of building out new pipeline capacity for a while now, a decade ago to move gas from Rockies east to Ohio and the Northeast, and in more recent years (since 2014) to move Marcellus/Utica gas west to markets in the Midwest and Gulf Coast. With this latest expansion, REX increased westbound capacity from Clarington, OH, by 800 MMcf/d, starting with 200 MMcf/d on December 13, 2016, followed by another 250 MMcf/d three days later and the final 350 MMcf/d increment on January 6, 2017. In total, REX has added 2.6 Bcf/d of westbound takeaway capacity, including the latest expansion. But, as we noted in Part 1, this latest in-service was a little different.

This time, gas flows climbed instantly to fill the new Z3CE capacity with each phase of the start-up. This is in contrast to the last big expansion—the 1.2-Bcf/d East-to-West expansion (E2W) in August 2015 (see Waiting for a REX Like You)—when flows increased gradually over several months. What changed between then and now is that significant third-party interconnect capacity (i.e., receipt point capacity) was added to bring gas supply onto REX, so by the time Z3CE began service there was more than enough receipt capacity to fill the pipe.

But, as we noted in Part 1, there is another big difference between the latest versus past expansions—even as REX flows increased.  All indications are that overall Marcellus/Utica production has grown little. In the past, each westbound expansion of REX was like a lifeline for capacity-strapped producers looking to get their trapped gas out of the oversupplied Northeast. As such, producers met the incremental takeaway capacity with new production, if not immediately then within a few months’ time as third-party infrastructure became available and made it possible to do so.