After a months-long regulatory delay, two Tallgrass Energy-led natural gas projects have progressed in the past month that will expand takeaway options out of the growing Denver-Julesburg (D-J) production area. Tallgrass in early October began construction on the Cheyenne Connector pipeline and the Rockies Express Pipeline’s Cheyenne Hub Enhancement — aimed at expanding outbound capacity and destination optionality for growing natural gas supplies from the Denver-Julesburg play in the Niobrara Shale, as well as providing a new outlet for Powder River Basin gas. The projects also have secured additional capacity commitments in recent weeks. And in its earnings call last week, Tallgrass said that DCP Midstream, which was already a shipper on Cheyenne Connector, has exercised its option to purchase 50% interest in the project. The influx of gas supply at Cheyenne Hub resulting from these projects will boost eastbound flows on Rockies Express (REX), which is in the midst of recontracting its capacity as existing long-term contracts roll off today. Next, we provide an update on the company’s plans to increase takeaway capacity out of the D-J basin and PRB.
We last wrote about the Cheyenne Connector and REX Cheyenne Hub Enhancement projects two years ago, soon after Tallgrass had announced binding open seasons for the two projects. At the time, associated gas production growth in the D-J Basin — a crude oil-focused play and really the only growing play in the Rockies (aka Rox) in recent years — had stalled at just above 1.5 Bcf/d in the aftermath of the crude oil price crash of 2014-15. But by late 2017, things were just starting to look up. Prices were beginning to amble above $50/bbl; the rig count in the D-J had doubled from the previous year; and crude oil production was again growing, albeit modestly, bringing with it associated gas volumes. Two years later, crude oil production from the D-J is now approaching 600 Mb/d, up 200 Mb/d (50%) from where it stood in late 2017. And, with that has come an incremental 1 Bcf/d or so of associated dry gas production; IHS Markit’s PointLogic data showed daily volumes hitting a record high of nearly 2.95 Bcf/d on October 24, 2019, and posting a new monthly high of 2.7 Bcf/d for October as a whole, compared with 1.7 Bcf/d in October 2017.
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