New Capacity

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 latest Energy Information Administration (EIA) Drilling Productivity Report projects natural gas production in the Marcellus and Utica up 170 MMcf/d  in April, and forecasts growth of another 150 MMcf/d in May and June to average about 3.8 Bcf/d higher in Q2 than in the same period last year. While there is talk of deferred well completions and shut-ins, it has yet to translate to a slowdown in production volumes in the Northeast region. Our analysis suggests that barring record-high demand, the region will struggle to balance growing supplies this summer with potentially dramatic consequences for prices Today we conclude our analysis of the Northeast gas supply/demand balance.

The U.S. Midwest region is slated to get an infusion of cheaper Northeast natural gas supply later this year as the first of five new westbound pipeline expansions is expected to begin service in November. Already a couple of projects are moving gas to the Midwest from the Northeast.  The Northeast-to-Midwest capacity will have a huge impact on the Midwest supply stack and consequently on prices. The Chicago Citygates forward curve shows prices flipping from premiums to discounts later this year. Today’s blog continues our look at how new pipeline capacity will re-shuffle the Midwest’s supply stack and change regional pricing.