Rockies Price and Fundamentals

Recent News:

• (November 1, 2023, S&P) Cash prices at Rockies hubs, such as Opal, have risen above $6/MMBtu since the weekend of October 28, driven by increased demand for gas in the Pacific Northwest due to early heating needs and reduced Canadian imports affecting supply
• (September 25, 2023) Northern Border Pipeline has applied to expand capacity by 430 MMcf/d, allowing gas produced in the Bakken to reach the Rockies. The expansion would enter service in 2026 and connect additional gas supplies to the Cheyenne Hub via the Bison pipeline, and could lead to bearish pressure on Rockies gas basis locations such as CIG Rockies.
• (August 8, 2023, Reuters) The 10th US Circuit Court of Appeals has upheld an approval for a large gas drilling project in the Upper Green River Basin. The project will include up to 3,500 new gas wells and was previously held up by environmental concerns over certain animal species. 
• (December 16, 2022, Tallgrass) Tallgrass Energy Partners announced that it has agreed to purchase the 1.5 Bcf/d Ruby Pipeline that runs from Opal, WY, to Malin, OR, in order to better serve West Coast natural gas markets. The transaction is expected to close in 1Q2023, subject to regulatory approvals and closing conditions. “Ruby’s capabilities maintain our nation’s energy security and provide long-term opportunities in the transportation of the molecules that will be required in the energy transition,” said Matt Sheehy, CEO of Tallgrass
• (October 28, 2022, NGI) Tallgrass Energy Partners plans to install dozens of FreeSpin In-line turboexpanders (FIT) across the Tallgrass natural gas pipeline system to respond to changing temperatures, pressures, and flow rates.
• (October 17, 2022, Oil & Gas Journal) - Summit Midstream Holdings LLC, a subsidiary of Summit Midstream Partners LP, will expand its Denver-Julesburg basin assets through acquisitions totaling $305 million in cash.

The chart above displays basis (difference from Henry Hub), rather than outright price. 

November 7, 2023 - CIG Rockies prices have recovered to $0.50/MMbtu in the prompt month following the first materially cold weather of the Winter '23/'24 season. Further out in the curve, prices have remained stable. The Summer '24 strip is continuing to trade around $-0.43/MMbtu, and the Winter '24/'25 strip is at $0.35/MMbtu.

NWP-CIG Dynamics: Operators who produce in the western part of the Rockies near Opal, Wyoming, are typically exposed to pricing on Northwest Pipeline (NWP); the associated basis location is, known as NWP-Rox. Like CIG, NWP-Rox typically trades at a premium in the winter months and a discount in the summer. The major difference between NWP-Rox and CIG is that NWP-Rox can better participate in California and Pacific-Northwest (PacNW). There is a constraint for gas produced on the eastern Rockies to flow westward; therefore, NWP-Rox can trade at a material premium to CIG when there is an acute need for gas in the west and PacNW markets. 

Rocky Mountain Gas Overview

Key interstate natural gas pipeline systems that serve the Rocky Mountains

Source: IHS

 Rig Count

Active rigs in the Rockies have generally been declining since 2009. The last three oil-price crashes have contributed to lower capital investment and, therefore, rig activity in the Rockies. The investment focus has turned to other basins. 

Source: Baker Hughes

Gas Production

The chart above includes gas production for the following basins in the Rockies: DJ, Green River, Piceance, San Juan (CO), Uinta, and "other" smaller contributors to overall Rockies production)

Production is shown above by major producing regions in the Rockies. The increased focus on the DJ in the past few years has led to the shale play accounting for the largest portion of gas production in the region.

Major Gas Takeaway Pipelines

The Rockies has significant winter-time demand, but there is a pronounced overflow of supply in the other seasons. There are multiple directions for surplus gas to exit the Rockies.

South - Gas headed south competes with growing "associated" gas (produced by oil wells) from in the Permian. A bottleneck exists when looking at the south/southwest corridor, where the Kern River pipeline usually runs near or at capacity. Both El Paso and Transwestern take gas to the Arizona and California markets, but these two are often constrained, full of competing Permian supply.

West - The Ruby and Northwest pipeline transport gas from the Opal hub to the Pacific Northwest (PacNW). Demand in the PacNW, including California, has been shrinking and has little prospects for demand growth. Further, the region receives Canadian gas that competes with the Rockies supply. Kern River is typically lumped in with the West market, but it delivers gas into southern California near the terminus of El Paso and Transwestern. However, the Kern pipeline sources gas from Opal at the same hub Northwest pipeline, so it is probably better classified as "westbound."

East - Eastbound capacity headed out of the Rockies is about 4.5 Bcf/d among CIG, REX, Southern Star, Trailblazer, Cheyenne Plains, and Tallgrass Interstate Pipelines. These pipelines typically serve Midwest demand via other Mid-Continent interconnects. REX reaches the furthest east, able to deliver gas as far as eastern Ohio. Gas flows on this eastern corridor are very seasonal. For example, eastbound flows on REX, measured by rates from Colorado to Nebraska, can vary between 1.75 Bcf/d in the spring or early summer but close to zero in the winter as gas stays home in the Rockies for local demand or reaches a more premium Opal and West market. 

The decline in production over the past few years has left the Rockies with ample takeaway capacity. This has tamed basis price volatility and more closely tied the Rockies to the downstream and competing markets. 

Rockies Express (REX) is a 1,679-mile natural gas pipeline system that runs from southwest Wyoming and northwestern Colorado to eastern Ohio. Originally, REX was built to transport up to 1.8 Bcf/d from the Rockies to demand centers in the Midwest and Northeast. After the rise of Appalachian production, REX owner Tallgrass Energy decided to make the eastern part of REX bi-directional to allow westbound (Appalachian) flows into Illinois. REX is segmented into three rate zones.

• REX - Entrega (Zone 1) - This segment is between the Meeker Hub in Rio Blanco County, Colorado, and the Cheyenne Hub in Weld County, Colorado. The legacy Entegra line was acquired by Rockies Express pipeline, LLC, in February 2006. The 136-mile-long segment from the Meeker Hub to the Wamsutter Hub in Sweetwater County, Wyoming, is a 36-inch pipeline. The 192-mile-long section from the Wamsutter hub to the Cheyenne Hub is a 36-inch pipeline as well and has been in service since February 2007.
• REX - West (Zone 2) - A 713-mile long 42-inch pipeline from Weld County, Colorado, to Audrain County, Missouri. The first 503-mile-long segment was commissioned in December 2007, and the second 214-mile-long segment was commissioned in May 2008.
• REX - East (Zone 3) - A 638-mile long 42-inch pipeline from Audrain County, Missouri, to Clarington in Monroe County, Ohio. In August 2015, REX placed its Zone 3 East-to-West Project into service, making Zone 3 of the mainline fully bi-directional with the ability to move approximately 1.8 Bcf/d of Appalachian production to the Midcontinent markets.

Colorado Interstate Gas (CIG) - Kinder Morgan's 4,350-mile pipeline system transports gas from supply areas in the D-J, Powder River, and other parts of the Rockies to customers in the Rockies and the Midwest, the Southwest, the Pacific Northwest, and California. 

Trailblazer Pipeline - A Tallgrass pipeline that runs from Cheyenne, Wyoming, to southeastern Nebraska. The pipeline travels 436 miles and provides an outlet for Rockies gas, seeking Midwest and East Coast markets via other pipeline interconnects.

Cheyenne Plains Gas Pipeline - A pipeline that transports gas from the Rocky Mountains to the Midwest. The system consists of a 36-inch diameter pipe spanning 410 miles. 

Wyoming Interstate Co. - Another Kinder Morgan-owned pipeline that encompasses an 850-mile gas system whose mainline runs from western Wyoming to the REX Cheyenne Hub in northeastern Colorado.

The Tallgrass Interstate Gas Transmission system - A spiderweb of pipelines that consists of about 4,650 miles of natural gas transport. Most of the system resides in Kansas and Nebraska, with some in central and southeastern Wyoming and northeastern Colorado. 

Hedging considerations

CIG or NWRox basis can be hedged with swaps. Both are usually hedged as part of a complete natural gas hedge. The general recommendation is to hedge NYMEX Henry Hub natural gas and basis in two steps but simultaneously. Contact us at info@aegis-hedging.com if you need to work through the details.