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REX Zone 3 Expansion to Cause Midwest Makeover, Genscape Says

The Rockies Express Pipeline (REX) Zone 3 east-to-west project will be online about a month later than planned -- in July. And then, natural gas from Appalachia will push Midcontinent supplies out of the Midwest and challenge Rockies gas for market, analysts at Genscape Inc. said in a note Wednesday.

The Zone 3 project would enable REX to flow 1.8 Bcf/d bidirectionally between the Clarington Hub and the Moultrie interconnect with Natural Gas Pipeline Company of America (NGPL) (see Daily GPIJune 24, 2014).

As of last Monday, east-to-west flows were about 1.06 Bcf/d, according to Genscape analysts. The project would allow gas from Appalachia to travel to Midwest markets on NGPL, ANR Pipeline, Oneok Inc.'s Midwestern Gas Transmission, Panhandle Eastern and Trunkline.

"The aggregate design capacity for these delivery interconnects will essentially double from 1,572 MMcf/d to 3,102 MMcf/d," analysts said.

"At present, Genscape does not expect Midwest demand will grow rapidly enough to absorb this influx of gas," analysts Erik Fabry and Colette Breshears said in the note. "The arrival of incremental Appalachian gas is expected to essentially displace incumbent supplies."

That means trouble first for Midcontinent gas, the analysts said, as the arriving Appalachian gas will enter pipelines moving Midcontinent-sourced gas, "...which does not appear capable of competing on a price basis." That Midcontinent gas has options to go elsewhere, they said. "...Rockies gas is likely next to get displaced due to higher production costs and expectations of reduced production."

REX is owned by Tallgrass, Sempra U.S. Gas & Power and Phillips 66. It is the only U.S. pipeline that directly links the Rocky Mountain and Appalachian supply basins to consumers in the Midwest.

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