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REX Zone 3 Expansion Arrives as Midwest Braces for Cold Blast

Westbound volumes on the Rockies Express Pipeline LLC (REX) increased about 200 MMcf/d this week, according to NGI’s REX Zone 3 Tracker.

The increase is the first sign of additional capacity from the 800 MMcf/d capacity enhancement project for east-to-west flows through REX’s Zone 3 out of eastern Ohio.

The REX tracker began showing an increase Tuesday “in Section 390 operating capacity from 1.8 Bcf/d to 2.0 Bcf/d,” NGI Markets Analyst Nate Harrison said. “Section 390 remains almost completely utilized (99% utilization) as flows immediately ramped up to fill the extra capacity.”

East-to-west flows on REX had been maxed at around 1.8 Bcf/d. The capacity enhancement will eventually bring total westbound volumes out of East Ohio to 2.6 Bcf/d. Harrison said this week’s incremental increase puts backer Tallgrass Energy Partners LP on schedule to meet its stated goal of having the capacity enhancement project fully operational by the end of the year.

The start-up of REX’s Zone 3 capacity enhancement “comes just in time to help bring some additional supply to Midwest markets anticipating single digit temperatures later this week,” Harrison said. “Isolating a price impact of the extra 200 MMcf/d would be very difficult given the weather situation this week. However, we can probably expect the additional capacity to help blunt some of the price volatility in the daily market due to fluctuations in heating demand.”

Daily GPI’s Appalachian Regional Average had Northeast producers riding high at $3.30/MMBtu in Tuesday’s trading, a welcome reprieve for the bulls after the region saw prices well below $1/MMBtu during the shoulder season in late September/early October.

In a note published early Tuesday, natural gas analytics firm Genscape said it tracked a 141 MMcf/d day/day jump in timely nominations on REX “though this number may change in later cycles. Overall, the uptick of 141 MMcf/d is well within the expected ramp up for the project.

“The largest growth comes from the EQT OVC point, which jumped 78 MMcf/d to 440 MMcf, followed by Rice Gunslinger, which added 30.5 MMcf/d,” Genscape said. “The Regency Ohio River System, responsible for REX filling to full earlier this year, also moved upwards, delivering” an additional 26 MMcf/d.

REX received the OK from FERC late last month to begin placing the Zone 3 capacity enhancement into service. Management for Tallgrass said during a 3Q2016 conference call that the 800 MMcf/d expansion is fully subscribed. Management had previously pointed to a growing interest from end users looking to tap into REX. The eventual available space on the expansion could provide “some pleasant upside surprises” relative to the designed capacity, according to CEO David Dehaemers.

Tallgrass and its affiliated entity own a combined 75% stake in REX, with Phillips 66 owning the remaining 25%.

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