1Q18 Midstream Potpourri: Williams, MarkWest, Summit, Tallgrass

Every three months publicly traded companies, including those with major operations in the Marcellus/Utica, issue a required quarterly update for stockholders. It’s often referred to as “earnings season.” We like to cull through the updates to share items of interest with MDN readers. For drilling companies we dedicate an entire post to each company. We typically don’t cover midstream (i.e. pipeline) companies as much. However, there are a number of important projects cooking with companies like Williams, MarkWest Energy (MPLX), Summit Midstream and Tallgrass (REX Pipeline). We culled through the press releases and analyst phone call transcripts to pick out comments and portions that we think are helpful in understanding where some of these important projects are, and how they impact the bottom line of said companies. Below is our 1Q18 midstream potpourri…
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Tallgrass Energy Eliminating MLP – First “Casualty” of Tax Cut?

Last week MDN brought you the news that the Federal Energy Regulatory Commission (FERC) had taken “significant action” to address the Trump tax cut legislation enacted last December (see FERC Takes Aim at Adjusting Pipe Rates in Light of Trump Tax Cut). FERC wants to be sure the tax cuts coming to electric companies and pipeline companies are passed on to consumers and pipeline shippers. The agency proposed new solutions to eliminate “tax loopholes” for natural gas pipelines. Closing these so-called loopholes will eliminate certain tax benefits for MLPs–master limited partnerships. Many pipeline companies (most) are organized as MLPs, which allows tax advantages to flow to investors. With certain tax benefits for MLP unitholders on the chopping block, all of a sudden some MLPs don’t look like such a hot investment anymore, at least on paper. Some analysts have speculated this may be the beginning of the end for MLPs. A few years ago Kinder Morgan got rid of all it’s MLP subsidiaries, combining them all into a single “C” corporation. Now, Tallgrass Energy, builder/operator of the mighty Rockies Express (REX) pipeline which flows Marcellus/Utica gas, is doing the same as Kinder did. Which causes us to ask the question, is Tallgrass’ MLP the first “casualty” of the Trump tax cut among pipeline companies?…
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Tallgrass has “Outstanding Quarter” Thx to REX Pipeline in the M-U

We still, to this day, marvel at how Tallgrass Energy Partners turned around what looked like a financial disaster, into a financial bonanza. Tallgrass built the Rockies Express (REX) pipeline that stretches from Colorado and Wyoming all the way to Ohio just in time for the shale revolution to hit. Whoops! Talk about bad timing! A significant portion of REX, it’s Zone 3 pipeline from Missouri to Ohio, was in danger of drying up in 2012 because of the increase in Marcellus/Utica gas being produced (see REX NatGas Pipeline Faces Stiff Competition from Marcellus). Tallgrass did an about face, reversing the flow of REX to run from Ohio to Missouri a year later, in 2013 (see REX Reverses Pipeline Flow from OH for Mystery Utica Customer). Since that time volumes along the Zone 3 portion of REX have done nothing but increase. A lot of Marcellus/Utica gas now flows from our region to the Midwest by hitching a ride on REX. The strategy of reversing the pipeline’s flow turned what was shaping up to be a disaster, into a bonanza. Yesterday Tallgrass issued its fourth quarter and full year 2017 update. While Tallgrass (as other pipeline companies) did well in 2017 in general, much of the company’s success came “as a result of incremental capacity sales in Zone 3” of the REX pipeline…
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Utica Pipeline Explosion in Noble County, OH Affects Natl Output

Seneca Lateral pipeline fire – Noble County, OH

On Wednesday around 2:30 am in the morning, a section of 24-inch pipeline that runs from the MarkWest Energy natural gas processing plant in Noble County, OH and the Rockies Express (REX) pipeline (also in Noble County) exploded and caught fire. The Noble County Emergency Management Office says it happened about three miles north of Summerfield, Ohio, near Ohio State Routes 513 and 379. Fortunately, no one was injured. Neighbors heard the explosion and saw a glowing night sky. The only damage was to some nearby trees. That short segment of pipeline is known as the Seneca Lateral, owned by Tallgrass (owner of REX Pipeline). Tallgrass is investigating the cause of the accident. Believe it or not, that one pipeline and the gas it flows from the MarkWest plant to REX, carrying it to the Midwest, has caused the entire national output of natural gas to decrease by an estimated 2%, according to Reuters. A single small pipeline can actually move the needle on output! Right away the Sierra Club jumped into the story with a wild claim that the pipeline was not properly reviewed before regulators signed off on it. Typical headline-grabbing propaganda from the Clubbers. Here are the details we could find about the explosion/fire…
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Rockies Express Pipeline Adds Another 180 MMcf/d from Ohio to Ill.

NGI’s Rockies Express Zone 3 Tracker – July 13, 2017 (click for larger version)

The Rockies Express Pipeline (REX) was originally built from Colorado and Wyoming to Monroe County, OH to bring natural gas from west to east. In 2015, REX began the process of reversing the flow for a large and important section of the pipeline–to send gas from the Utica/Marcellus to the Midwest. By January of this year, REX had reversed and was flowing 2.6 billion cubic feet per day (Bcf/d) of gas from Clarington, OH to Mexico, MO (see REX Pipe Completes Expansion Today, 2.6 Bcf/d Flowing East-to-West). Except REX wanted more! The demand is there, and REX announced in February they were working on a plan to flow another 150 million cubic feet per day (MMcf/d) of natgas from Ohio to the Midwest (see REX Pulls Rabbit Out of Pipeline – Adding Another 150 MMcf/d). REX ran a new open season and got commitments for 180 MMcf/d, and began flowing it in June, according to an announcement released yesterday. The announcement also shared that REX (independent subsidiary of Tallgrass Energy) has a new CEO: Crystal Heter. Crystal was once an engineering intern at REX and has steadily risen through the ranks to now sit in the big chair. We congratulate her! Here’s the info about REX’s latest coup in adding another 180 MMcf/d of capacity to its Zone 3, reversed pipeline…
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The Difference One Utica Pipeline Can Make on Gas Prices

What happens when you build a major interstate natural gas pipeline–and you’ve guessed wrong about the market. That happened to Tallgrass Energy and their Rockies Express Pipeline (REX), which runs from Colorado and Wyoming in the West to Ohio in the East. The REX Pipeline was completed in 2009, just in time for the shale revolution to begin in the Marcellus and now in the Utica. What to do when you’re pumping gas into a saturated market? You reverse the flow (see Reversing the Fortunes for “Wrong Way” REX Pipeline). On August 1, 2015 the section of REX from Monroe County, OH to Mexico, MO (called Zone 3) reversed the flow and began to carry 1.8 billion cubic feet per day (Bcf/d) of Utica and Marcellus Shale gas to the Midwest, including to the greater Chicago area. In January 2017, REX completed the reversal project and now flows 2.6 Bcf/d of Marcellus/Utica gas to the Midwest (see REX Pipe Completes Expansion Today, 2.6 Bcf/d Flowing East-to-West). The ace researchers at Natural Gas Intelligence have been looking at prices Utica drillers were able to get for their gas at key locations before and after REX reversed the pipeline and have found that single pipeline has “erased” the price differences between Utica and Marcellus gas. That is, Utica drillers now fetch much higher prices for their gas, everywhere they sell it (in Ohio and out), because of the REX pipeline and the new markets it has opened up…
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REX Pulls Rabbit Out of Pipeline – Adding Another 150 MMcf/d

The Rockies Express Pipeline (REX), originally built from Colorado and Wyoming to Monroe County, OH to bring natural gas from west to east, last year reversed the flow for a large and important section of the pipeline. On August 1, 2015 the section of REX from Monroe County, OH to Mexico, MO reversed the flow and began to carry 1.8 billion cubic feet per day (Bcf/d) of Utica and Marcellus Shale gas to the Midwest, including to the greater Chicago area. REX has been hard at work on plans to expand capacity even more by beefing up compressor stations along portions of the pipeline. REX filed a plan with FERC to add another 800 million cubic feet per day (MMcf/d) of capacity along the same portion of the reversed pipeline–for a grand total of 2.6 billion cubic feet per day (Bcf/d). In mid-December, the first 200 MMcf/d of capacity came online (see Reversed REX Pipeline Goes from 1.8 Bcf to 2.0 Bcf). A week later another 250 MMcf/d was brought online (see REX Pipeline Adds Yet More Capacity, Now Flowing Extra 450 MMcf/d). In January, the final 350 MMcf/d went online, and REX is now flowing 2.6 Bcf/d of Utica/Marcellus gas to Chicagoland and beyond (see REX Pipe Completes Expansion Today, 2.6 Bcf/d Flowing East-to-West). Expansion complete. Except–Tallgrass says they can squeeze another 150 MMcf/d out of the reversed pipeline! Next month they’re going to run a new open season to sell yet more capacity, which would bump what had been 2.6 Bcf/d to 2.75 Bcf/d…
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REX Pipe Completes Expansion Today, 2.6 Bcf/d Flowing East-to-West

The Rockies Express Pipeline (REX), originally built from Colorado and Wyoming to Monroe County, OH to bring natural gas from west to east, last year reversed the flow for a large and important section of the pipeline. On August 1, 2015 the section of REX from Monroe County, OH to Mexico, MO reversed the flow and began to carry 1.8 billion cubic feet per day (Bcf/d) of Utica and Marcellus Shale gas to the Midwest, including to the greater Chicago area. REX has been hard at work on plans to expand capacity even more by beefing up compressor stations along portions of the pipeline. REX filed a plan with FERC to add another 800 million cubic feet per day (MMcf/d) of capacity along the same portion of the reversed pipeline–for a grand total of 2.6 billion cubic feet per day (Bcf/d). In mid-December, the first 200 MMcf/d of capacity came online (see Reversed REX Pipeline Goes from 1.8 Bcf to 2.0 Bcf). A week later another 250 MMcf/d was brought online (see REX Pipeline Adds Yet More Capacity, Now Flowing Extra 450 MMcf/d). Beginning today, the final 350 MMcf/d is coming online. REX is now flowing 2.6 Bcf/d of Utica/Marcellus gas to Chicagoland and beyond…
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REX Pipeline Adds Yet More Capacity, Now Flowing Extra 450 MMcf/d

Last Wednesday MDN (via a story from NGI) brought you the good news that the Rockies Express Pipeline (REX) had begun to flow an extra 200 million cubic feet per day (MMcf/d) of natural gas from East to West along the pipeline–moving more Utica and Marcellus gas from Ohio to places like the Chicago area (see Reversed REX Pipeline Goes from 1.8 Bcf to 2.0 Bcf). REX previously filed a plan with the Federal Energy Regulatory Commission (FERC) to add another 800 million cubic feet per day (MMcf/d) of capacity along the reversed portion of the pipeline. In late November, FERC gave REX the go-ahead to start additional compressors added at three locations along the route. The plan is to have all of the extra 800 MMcf/d flowing by the end of this year. On Wednesday, as we noted, 200 MMcf/d of additional capacity kicked in. Then on Friday, NGI reported another 250 MMcf/d was added, meaning 450 MMcf/d was added to REX’s capacity in a single week. That’s another 450 MMcf/d of yummy, clean-burning fracked Utica/Marcellus shale gas flowing to the Midwest that wasn’t a week ago. We love it when a plan comes together…
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Reversed REX Pipeline Goes from 1.8 Bcf to 2.0 Bcf

The Rockies Express Pipeline (REX), originally built from Colorado and Wyoming to Monroe County, OH to bring natural gas from west to east, last year reversed the flow for a large and important section of the pipeline. On August 1, 2015 the section of REX from Monroe County, OH to Mexico, MO reversed the flow and began to carry 1.8 billion cubic feet per day (Bcf/d) of Utica and Marcellus Shale gas to the Midwest, including to the greater Chicago area. REX has been hard at work on plans to expand capacity even more by beefing up compressor stations along portions of the pipeline. REX filed a plan with FERC to add another 800 million cubic feet per day (MMcf/d) of capacity along the same portion of the reversed pipeline. In late November, the Federal Energy Regulatory Commission (FERC) gave REX the go-ahead to start additional compressors added at three locations along the route (see REX Pipe Begins Flowing Extra 800 MMcf/d Marcellus/Utica Gas West). NGI is reporting that the first 200 MMcf of the additional 800 MMcf is now flowing along the pipeline…
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REX Pipe Begins Flowing Extra 800 MMcf/d Marcellus/Utica Gas West

rex-pipelineThe Rockies Express Pipeline (REX), originally built from Colorado and Wyoming to Monroe County, OH to bring natural gas from west to east, last year reversed the flow for a large and important section of the pipeline. On August 1, 2015 the section of REX from Monroe County, OH to Mexico, MO reversed the flow and began to carry 1.8 billion cubic feet per day (Bcf/d) of Utica and Marcellus Shale gas to the Midwest, including to the greater Chicago area. REX has been hard at work on plans to expand capacity even more by beefing up compressor stations along portions of the pipeline. Their efforts have paid off. REX previously filed a plan with FERC to add another 800 million cubic feet per day (MMcf/d) of capacity along the same portion of the reversed pipeline. Yesterday the Federal Energy Regulatory Commission (FERC) gave REX the go-ahead to start additional compressors added at three locations along the route…
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ICF Predicts Marcellus/Utica Gas Will Double by 2025!

doubleYou just can’t get away from the Marcellus/Utica–even at a conference supposedly focused on the Western U.S. Natural gas infrastructure was a key topic at the recent LDC Gas Forum Rockies & West conference held in Denver, CO. ICF International vice president Kevin Petak was one of the speakers. He dropped what is (to us) a bombshell when he said he believes the Marcellus and Utica combined will pump out 40 billion cubic feet per day (Bcf/d) by 2025–just 10 short years from now. The two plays combined today are pumping around 21 Bcf/d–so Petak is predicting our output will double! If that’s so, there will need to be a whole lotta drillin’ goin’ on between now and then. In addition to Petak, Crystal Heter, vice president for commercial operations at the Rockies Express (REX) pipeline, had some VERY interesting things to say about the REX pipeline reversal which sends Marcellus/Utica gas to the Midwest. It looks like even more gas is about to go from our area westward…
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Indiana NatGas Electric Plant Seeks Permission to Double Size

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St. Joseph Energy Center – artist’s rendering (click for larger version)

For years there had been a plan to build a new natural gas-fired electric plant near the town of New Carlisle, Indiana. The original plan, called the St. Joseph Energy Center, was to build a $500 million, 700-megawatt plant, to be fed by gas “coming from Canada, the West and the Gulf of Mexico.” The plant had a groundbreaking this spring. However, plans are changing. The developer wants to double the size of the plant to 1,400 megawatts. There has been no mention of Marcellus/Utica gas feeding the plant, but our own speculation is that a lot has changed since this plant was first planned. One of the big changes has been a reversal of the Rockies Express (REX) pipeline, owned by Tallgrass, which now flows gas from the Marcellus/Utica west to Illinois (right through Indiana) delivering northeast gas to the Greater Chicago area, where this plant will be built. So that has MDN wondering if the St. Joseph Energy Center will get some yummy northeast gas to power it (the reason why we’re highlighting this story)…
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REX Buying Back Another 25% of Pipeline from Sempra

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REX Pipeline map – click for larger version

Tallgrass Energy, builder and operator of the mighty Rockies Express (REX) Pipeline issued their first quarter 2016 update yesterday. Among the interesting bits of news in the update is that Tallgrass is buying out Sempra Power & Gas’ 25% ownership interest in REX. Sempra Power & Gas is a subsidiary/division of Sempra Energy. Just last month Tallgrass bought out Sempra Energy’s existing ownership stake in REX for $440 million (see Tallgrass Buys Out Sempra’s Portion of REX Pipeline for $440M). Apparently a division of Sempra still owned a large stake in the pipeline, and now Tallgrass is buying out that interest as well. REX is a 1,712-mile pipeline which runs from Colorado and Wyoming to Ohio, originally built to flow western natural gas to the Midwest and East. But then the Marcellus/Utica took off like a rocket and all of a sudden there was no market for western gas in our neighborhood. So Tallgrass reversed the flow for part of the REX (see Rockies Express Pipeline Reverses Flow from Utica to Midwest). Tallgrass turned what could have been a company-killing decision into the crown jewel asset of the company, simply by reversing the flow. Here’s the 1Q16 update from Tallgrass…
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Tallgrass Buys Out Sempra’s Portion of REX Pipeline for $440M

Just a few years ago that Tallgrass Energy, majority owner of the Rockies East Express (REX) pipeline–a 1,712-mile pipeline which runs from Colorado and Wyoming to Ohio–had an “Oh crap!” moment. The pipeline was built to bring then-abundant natural gas from the West to markets in the Midwest (like Chicago) and the East–via connections with other pipelines. Then the Marcellus and Utica happened, forever changing the natural gas dynamic in the United States. Nobody in the Midwest and East wanted western gas anymore. What to do?! Tallgrass knows how to pivot, and pivot they did–deciding to reverse the flow for a portion of the REX pipeline (see REX Reverses Pipeline Flow from OH for Mystery Utica Customer). Their bright idea worked, and beginning last August, the REX pipeline from Monroe County, OH to Mexico, MO reversed its flow (see 1.8 Bcf/d of Marcellus/Utica Gas Heads West on REX Starting Aug 1). What was a huge negative turned into a big positive for Tallgrass. Now Marcellus/Utica rides the pipeline west every single day–and there’s no sign of it letting up. If anything, REX will reverse more of the line at some point. That got Tallgrass to thinking, maybe REX had become the crown jewel of the company. So Tallgrass has decided to buy out one of partners in REX, Sempra Energy, to the tune of $440 million…
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Reversed REX Pipeline from Marcellus/Utica to Midwest Will Expand

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Click map for larger version

On August 1, the Rockies Express Pipeline reversed its direction on a portion of the pipeline called Zone 3 and began flowing 1.8 billion cubic feet per day (Bcf/d) of Marcellus and Utica Shale gas to the Midwest (see 1.8 Bcf/d of Marcellus/Utica Gas Heads West on REX Starting Aug 1). REX Zone 3 stretches from Clarington, OH to Mexico, MO (see the map). Further good news. The Federal Energy Regulatory Commission (FERC) has granted a favorable Environmental Assessment (EA) for REX to beef up capacity along Zone 3 by expanding two existing compressor stations and building three new compressor stations along the Zone 3 section. We also know who got the contract to build it…
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