On September 12, Tallgrass Energy Partners (NYSE:TEP) announced an open season for its Cheyenne Connector natural gas pipeline which will add at least 0.6 Bcf/d of gas takeaway from the DJ Basin to interconnect with Cheyenne Hub in Wyoming. The project is expected to be in service in 3Q 2019. Due to strong comparative economics, BTU Analytics expects 1.1 Bcf/d of gas production growth in the DJ Basin between September 2017 to YE 2020 (see Upstream Outlook). Combined with anticipated gas growth from the Permian Basin and increased Northeast production with the completion of Rover, US flow patterns will continue to change, driving DJ Basin producers to look for new markets and new pipeline projects.
Historically, Colorado Interstate Gas Company (CIG), owned by Kinder Morgan (NYSE:KMI), has received the lion’s share of processed DJ Basin production. From there, CIG serves regional demand and delivers to a variety of pipelines to facilitate movement out of the region. However, without further projects, CIG may be facing capacity constraints that could limit DJ Basin production growth, providing the rationale behind the Cheyenne Connector.
Additionally, the Cheyenne Connector provides Rockies Express Pipeline (REX) access to incremental gas volumes that can flow east on REX out of the Rockies. Despite an uptick in throughput from an annual average perspective, average eastbound flows on REX have been declining since 2010 when flows averaged 1.7 Bcf/d compared to 1.2 Bcf/d YTD in 2017 out of a design capacity of 1.8 Bcf/d.
The current oil price environment, paired with growth from low cost gas production in areas like the Marcellus, Utica, and the Haynesville are likely to continue to pressure Rockies oil and gas plays outside of the DJ Basin, limiting growth and leaving space for DJ Basin gas to increase utilization on eastbound REX.
However, with the recent completion of Rover, trouble may loom at the end of REX. In 2017, as Rockies gas has faced increased pressure and displacement from West and Pacific Northwest markets, eastbound flows on REX have increased. Now that Rover has begun partial service, this outlet will become more congested and could significantly impact realized prices for Rockies gas producers.
Stay tuned to our Energy Market Commentary on the far-reaching impacts of Rover over the coming weeks, and for more in-depth analysis, request a sample of our Northeast Gas Outlook.