The Rockies Express Pipeline LLC (REX) Zone 3 Capacity Enhancement Project is set to begin service before the end of 2016, management for Tallgrass Energy Partners LP told investors during its quarterly conference call Wednesday.

Earlier this year, the Leawood, KS-based Tallgrass upped its ownership stake in REX, a major interstate transmission line running from Colorado to eastern Ohio, buying a 25% interest in the pipeline (see Shale Daily, March 30). Tallgrass affiliate Tallgrass Development LP already owned a 50% stake and operates the pipeline.

The REX Capacity Enhancement Project will add about 800,000 Mcf/d of capacity to the 1.8 Bcf/d pipeline (see Shale Daily, Feb. 29), which has been running at close to 100% capacity transporting gas east-to-west out of Ohio (see NGI’s Rockies Express Zone 3 Tracker).

Spire Inc. (formerly Laclede Group) recently announced a new 400,000 Mcf/d lateral that will interconnect with REX in Scott County, IL (see Daily GPI, Aug. 4). After signing an agreement with a Spire subsidiary, 730,000 Mcf/d of the 800,000 Mcf/d of capacity from the REX expansion is now under contract, COO William Moler said.

“More important than anything is it’s 400,000 Mcf/d of direct-connected, burner tip capacity that gas coming from the Rockies or from the Marcellus and Utica can go to,” he said. “The more takeaway we have, the more demand — direct-connected demand where you don’t have to pancake pipe on pipe — is a good thing for us. It gives all of our shippers a new liquid point of sale, and that’s encouraging and very positive.”

“Clearly, we all recognize that delivery of natural gas has fundamentally changed in this country in the last five years,” CEO David Dehaemers said. “And I think because of that, LDCs in particular are looking to source gas from other places than they were in the past. I think they have new routes that they can take that presumably will net them at lower cost to their customers…there is a lot of capacity on that line, and as you go through time, if it’s proven out that Rockies gas or Marcellus and Utica gas or Mancos Shale gas is cheaper, that’s a good thing for everybody.”

Earlier this summer, REX underwent a planned outage for a five days as part of construction work on three new compressor stations added for the Capacity Enhancement Project (see Daily GPI, July 18). As of June 30, more than 60% of the projected capital allocated to the project had been spent, management said.

As for efforts to pursue a $303 million claim as part of former REX shipper Ultra Petroleum Corp.’s (see Shale Daily, March 29) ongoing bankruptcy proceedings, a resolution has not yet been reached, but the company “has been heavily involved in the negotiation process from day one,” Moler said. “While the process is still ongoing and we have no current view to share into our potential recovery, we are confident in our ability to recover a substantial amount of that claim.”

Asked about any additional counterparty credit risk for REX moving forward, Tallgrass management didn’t seem concerned.

“Well, I think the good news is that natural gas, my last trade was like $2.88/Mcf, and I think with the healthy gas market in that $2.50-$3/Mcf range, it takes a lot of the problems away for people,” Dehaemers said. “It probably, frankly, somewhat takes away the problems for even the people…that have filed already.”

Added Moler, “We had a record 3.57 Bcf moved on [REX] in one day. Just for those of you who don’t get that math, that’s approximately 1.8 Bcf/d moving west-to-east and 1.8 Bcf/d moving east-to-west. We’re moving 1.8 Bcf/d east-to-west every day, and people can’t wait for the expansion to come on. I know the question was about credit risk, but you can see what the markets did when we were down for four days. This is hugely meaningful and impactful infrastructure to this country, and necessary.

“We’re not worried that if we lose one that there won’t be 10 to replace.”

REX’s average firm contracted volumes for 2Q2016 totaled 3.33 Bcf/d, compared with 2.34 Bcf/d in the year-ago quarter.

Management for Tallgrass, which owns the Bakken Shale takeaway Pony Express crude oil pipeline, also fielded questions Wednesday regarding the recent shelving of the Sandpiper Pipeline (see related story).

For the quarter, Tallgrass averaged 286,217 bbl/d of throughput for its crude oil transportation segment, compared with 237,184 bbl/d in the year-ago quarter. Second quarter firm contracted volumes on its Tallgrass Interstate Gas Transmission and Trailblazer Pipeline systems averaged 1.48 Bcf/d, compared with 1.52 Bcf/d in the year-ago quarter. Natural gas processing inlet volumes averaged 106 MMcf/d in the quarter, compared with 130 MMcf/d in the year-ago.

Tallgrass reported $146.9 million in total revenues for the quarter, up from $133 million in 2Q2015.

Net income for the quarter was $92 million (93 cents/unit) versus $53.2 million (56 cents/unit) in the year-ago period.

Stay up to date on 2Q2016 earnings and projections for the remainder of the year with NGI‘s Earnings Call and Coverage sheet.