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Natural Gas Weekly Update Report – July 23, 2015

Rockies Express Pipeline (REX) nears completion of Zone 3 east-to-west reversal


Rockies Express Pipeline (REX) with associated natural gas basins.


The Rockies Express Pipeline (REX) is completing construction on compressor stations and interconnects for its Zone 3 east-to-west project and expects to bring Zone 3 online on or about August 1. Once the final leg of the project is placed in service, Zone 3 will be fully bidirectional, with the ability to move 1.8 billion cubic feet per day (Bcf/d) of natural gas in either direction from the Clarington Hub in Monroe County of eastern Ohio to the Mexico compressor station in Audrain County, Missouri.

One of the longest pipelines in the United States, measuring more than 1,700 miles in length, REX is divided into three zones. REX began service in November 2009 to move up to 1.9 Bcf/d of natural gas east from the Rockies to meet demand in midwestern and northeastern markets. As Marcellus production increased in the Northeast, the demand for REX-supplied gas decreased. In response to changing market conditions, Tallgrass Development, the operator of REX, began construction that would allow for physical flow reversal as well as traditional backhaul on REX's easternmost zone, Zone 3, to move Appalachian Basin production westward.

REX Zone 3 is an unusual backhaul pipeline in that it can physically flow gas westward as well as arrange backhaul transactions through traditional displacement. Because gas is fungible, it makes no difference to buyers whether the molecules come from the Rockies or the Marcellus.

The project was completed in several stages, with the first westbound natural gas flows beginning in June 2014 from the Seneca Lateral pipeline in southeast Ohio (see map). Initially, the Seneca lateral had the capacity to move 0.25 Bcf/d of Marcellus production into the REX mainline, and that capacity increased to 0.6 Bcf/d in the first quarter 2015. As additional receipt points were made available, the REX reversal allowed gas to move farther west. To date, REX has delivered gas as far west as Edgar County, Illinois to its interconnection point on the Midwestern Gas Transmission Company pipeline. On completion of the east-to-west project, gas will flow farther west to Moultrie County, Illinois, and its interconnection with the Natural Gas Pipeline Company of America (NGPL).

This east-to-west project has secured firm, 20-year contracts for east-to-west flows with American Energy Appalachia, EQT Energy, Gulfport Energy Corp, and Rice Energy, and will access interconnects with ANR, Midwestern, NGPL, Panhandle, and Trunkline pipelines. Completion of the project will allow the movement of up to 1.2 Bcf/d of natural gas, in addition to the 0.6 Bcf/d delivered from the Seneca lateral, for a total westbound firm capacity of 1.8 Bcf/d along the entire length of REX Zone 3, with no effect on eastbound transit. Westbound outflows measured at the Hamilton, Ohio, compressor station in early July, as reported by Bentek Energy, confirmed that approximately 70% of the natural gas flowing west on REX Zone 3 moved out of the Northeast region, demonstrating the demand for a low-priced supply of natural gas from the Marcellus/Utica plays.

Even before bringing the east-to-west expansion online, REX was planning a Zone 3 Capacity Enhancement that will increase east-to-west capacity by an additional 0.8 Bcf/d, bringing the total capacity for westbound service to 2.6 Bcf/d through the incorporation of additional receipt points. Tallgrass Energy and its partners believe that this expansion will improve their ability to serve Midwest markets, including Chicago and Detroit, along with delivery to Gulf Coast and Southeast markets. If approved, REX anticipates a fourth-quarter 2016 in-service date for this capacity enhancement.


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