Tallgrass Energy has set the industry abuzz over a pipeline project that would move Permian gas to its Rockies Express Pipeline (REX). The proposal for now is long on hype and short on details, including the planned pipeline route, sparking speculation on where Tallgrass plans to build.
On May 12, Tallgrass announced a precedent agreement for the pipeline connecting REX to Permian supply. The company plans to hold an open season and offer up to 2.4 Bcf/d of capacity along a still unknown route.
REX stretches 1,679 miles from the Meeker hub in Colorado to Clarington, OH. East Daley Analytics sees several potential interconnections to REX (see map), each with different impacts to regional supply and demand balances.
Option 1: Western Route
The pipeline could take a western route and deliver into Meeker. The western route could follow El Paso Natural Gas and Transwestern rights-of-way to the Four Corners area in the Southwest, then head north.
Delivery into the western end of REX could help source gas in the West as Rockies production declines over the long term. The Overthrust Westbound Expansion planned by Williams (WMB) will open 325 MMcf/d of capacity to continue westward on Ruby Pipeline. This route also gives Tallgrass future opportunity to expand in the Southwest, a market East Daley Analytics sees as underserved in sight of booming demand estimates.
Option 2: Northern Route
The pipeline could travel due north from the Permian Basin and deliver gas somewhere in western Nebraska. This option offers the shortest path to REX, and likely the lowest construction cost for Tallgrass. Delivering into Nebraska would give shippers optionality to move gas west to the Rockies or east to the Midwest. Both markets can trade at a premium in the winter, so this option preserves the most flexibility for shippers to capitalize on regional price swings.
Option 3: Midcon Route
The third option is to follow a similar route as the Natural Gas Pipeline of America (NGPL) and Northern Natural Gas (NNG) systems to the Midcontinent. Of the four options, EDA believe this one is the least likely because the northbound segments on NGPL and NNG are already underutilized much of the year. They primarily serve peak demand when Midwest markets call on more gas in the winter.
Option 4: Missouri Route
The final option is to interconnect with REX at Mexico, MO and deliver gas as close as possible to the Chicago market. Flows at this point on REX are volatile; volumes averaged about 500 MMcf/d over the last five years, ranging from a maximum of ~1.1 Bcf/d to a minimum of 50 MMcf/d. The low flows typically occur during periods of peak demand when gas moving west from the Northeast is absorbed into Chicago.
See East Daley's Permian S&D Model for more information. – Zach Krause Tickers: WMB.
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