The long-awaited Rockies Express Pipeline (REX) was accepting nominations today Friday for initial deliveries Saturday, Jan. 12, 2008, starting up initial operations of the massive pipeline from the fastest growing U.S. supply region. The pipeline eventually will stretch nearly 1,700 miles to points East across the country.

The 1.8 Bcf/d of capacity operational Saturday will make deliveries up to 500 miles away, to a connection in Kansas with ANR Pipeline. The remainder of the pipeline segment known as REX-West is expected to extend service another 200 miles to connect as far as Panhandle Eastern Pipe Line in Audrain County, MO, in early February.

A pipeline announcement said the interim service for all firm contracts starting Saturday would include all receipt and delivery points upstream of the ANR connection, except for the Cheyenne and Echo Springs receipt points on Wyoming Interstate (WIC). Shipper requests for a change in primary receipt points will be accommodated if possible. The WIC Cheyenne point should be available on Jan. 16 and Echo Springs before the end of January.

The start-up was in line with plans announced a week prior (see Daily GPI, Jan. 7) that said purging and packing of the pipe would be completed by Jan. 11.

Another portion of the line, the eastern segment of the $4.4 billion project, known as REX-East, would extend 640 miles from Missouri to Clarington, OH. That portion of the project has received a favorable draft environmental impact review at FERC (see Daily GPI, Nov. 27, 2007), and service could begin as early as Dec. 30 to be fully operational by June 2009.

Deliveries on REX-West starting this winter will send bottled-up Rockies gas to connections serving the Midwest and are expected to have an impact on the widening overall basis differential between prices at Rockies receipt points and the Henry Hub price for production in the Gulf and in the Midcontinent. While prices have evened out in the last few weeks with extreme winter weather in the local Rockies market, as recently as last fall price quotes for Rockies gas sank as low as a penny.

The first time gas sold for a penny was at Opal on a Friday in mid-September of last year (see Daily GPI, Sept. 17, 2007), although earlier that week quotes had gotten as low as 7 cents (see Daily GPI, Sept. 12, 2007). The penny gas malady spread to other Rockies points following the Sept. 15-16 weekend (see Daily GPI, Sept. 18, 2007). The most recent instances of 1-cent quotes were at three Rockies locations in early November (see Daily GPI, Nov. 9, 2007). On a number of days in September and November the lowest bids at some Rockies points were below 10 cents.

The extreme weakness of basis spreads suffered by Rockies producers is nothing new. NGI saw Rockies numbers fall as low as 15 cents — what was then the all-time low — as far back as April 2002 (see Daily GPI, April 16, 2002). The differential eased in late 2003 when the major expansion of Kern River Gas Transmission went into service, taking about 900 MMcf/d out of the Rockies to California.

Since then rapidly increasing Rockies development has again loaded up the production end of the pipe. And while winter prices aren’t much more than 10-15 cents below Midcontinent prices, the impact of the new takeaway capacity should be more evident in the spring when the local winter market diminishes.

The completion of REX-East to additional markets will aid in the leveling process.

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