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Ruby, Ruby, When Will You Be Mine - Tallgrass Bid Breathes New Purpose into Languishing Ruby Pipeline

Tallgrass Energy last month snagged an early Christmas present: It won a bid for Ruby Pipeline, the beleaguered Rockies-to-West Coast natural gas system that has long been underutilized and cash-poor. In doing so, it beat out one of the largest midstream companies in North America and a long-time co-owner of Ruby — Kinder Morgan. Ruby may be a languishing asset, but for Tallgrass it’s more like a crown jewel in its quest to be the only transcontinental header system in the country that would connect trapped Appalachian gas supply with premium West Coast markets. Tallgrass’s Rockies Express (REX) pipeline is already moving Marcellus/Utica molecules west to the Rockies — the opposite direction than it was originally built for in the pre-Shale Era. The Ruby acquisition, which has yet to close, would allow Tallgrass to extend its reach farther west, directly into the premium West Coast markets. The Ruby deal comes at a time when California’s aggressive decarbonization goals are leading to gas shortages and exorbitant fuel premiums out west, and there’s an immediate need to debottleneck routes to get gas there. In today’s RBN blog, we begin a series delving into how Ruby fits into the Western U.S. gas market and what the acquisition would mean for Tallgrass.

We’ll start with the deal itself. On December 16, Tallgrass announced that it had reached an agreement to buy the Ruby Pipeline out of bankruptcy for $282.5 million. Ruby Pipeline, a joint venture of Kinder Morgan and Calgary-based Pembina, filed for Chapter 11 bankruptcy protection on March 31 as the financially struggling pipeline was approaching debt repayment obligations that it could not meet. Tallgrass entered its bid in a court-ordered auction held on December 13, beating out a bid of $276 million from Kinder Morgan’s EP Ruby LLC, which also made the initial stalking-horse bid of $236 million.

Ruby consists of a 680-mile, 42-inch-diameter pipeline with the ability to move 1.5 Bcf/d from the Opal Hub in western Wyoming’s Lincoln County to a termination point in Malin, OR, near the California border. The map in Figure 1 shows Ruby (red line) along with other major Rockies and West Coast pipelines. Ruby receives Rockies supply at Opal directly from production and processing interconnects, as well as from a couple of other pipeline systems — including the MountainWest Overthrust Pipeline (dark green line) and REX (orange line), the latter via the westbound firm capacity it holds on Overthrust. Some of the gas is delivered in Nevada for gold-mining operations, but the bulk of the flows end up at Malin, and the majority of that is delivered into PG&E’s California Gas Transmission (CGT; light pink lines) system to serve demand in Northern California.

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