BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR PRIVACY & COOKIE NOTICE
X
Skip Navigation LinksHome|News & Analysis|News Features|News Feature Detail

Print

Western markets are poised to prosper in 2008


With 2008 in full swing, Rocky Mountain market watchers agree that some significant pricing and infrastructure events from 2007 continue to exert their influence, but some issues unfolding in 2008 will likely have a less tangible, yet more fundamental role in determining the face of the industry.


An ongoing discussion related to the Rockies is the state of regional takeaway capacity, which continued to be constrained throughout much of 2007 even as Kinder Morgan brought a new leg of its Rockies Express Pipeline (REX) online in February.


It's possible that people don't understand the impact REX-West will have on the Lower 48.
--David Tameron, Wachovia Securities


The segment -- between the Wamsutter Hub in Wyoming and Cheyenne Hub in Colorado -- completed Kinder's initial phase of REX construction and increased regional takeaway capacity by 750,000 Dt/d.


While there was seemingly minimal impact on the spot market after the first REX phase was completed, in early 2008 the pipeline began flowing REX gas into ANR Pipeline on an interim basis and market players across the region felt an immediate effect.


Liquidity at key points such at Cheyenne Hub and Kern River Gas Transmision at the Opal, Wyoming, plant increased and volatility declined. Shippers used to a comfortable profit margin were also squeezed.


"We [were] looking at flows and it's still hard to get a clear picture of what's going on, but there [was] definitely gas from Opal flowing east," one Rockies trader said early in the year.


"The spread from Opal to [Southern California Gas] is the sweetheart spread of the West, and that has narrowed."


Interestingly, however, spreads between the Rockies and the Midcontinent hovered around variable rates, the trader said, which surprised many players.


he Rockies trader felt "convergence had definitely occurred," but noted flows east were not "in optimization mode yet. I think some people are just concerned with getting gas flowing at this point, [but] the Midcontinent should be higher than it is. Either that, or the Rockies should be lower," he added.


Since interim service began in January, Midcontinent prices have traded at a near-constant, double-digit premium to the Rockies, but the spread has rarely exceeded about 15 cents.


Even as traders flowed supply along the first leg of REX, many kept an eye on REX-West, the second segment that will take gas from the Cheyenne Hub to Audrain County, Missouri.


In late 2007 Kinder delayed its opening to February, but by early March, the pipeline had announced its full in-service date would be pushed back once again.


Many sources said the continued delays had little effect on their trading. "There was lots of speculation over the last year about how [REX] would affect prices, but it's so close [to being completed] right now that... it's a safer bet to not trade around construction, but around fundamentals," a cash trader asserted.


Despite the negligible impact on pricing, David Tameron, an analyst with Wachovia Securities, said REX-West will be an important issue going forward.


"It's possible that people don't understand the impact REX-West will have on the Lower 48. People see it as a way [to get gas] out of the Rockies, but I tend to think it's much more than that," he said.


"You're getting access to the east that you've never seen before. I think it's very dynamic and impacts a [heck] of a lot more than the Rockies -- it will affect the Midcontinent, the Northeast, the Midwest, Appalachia. It's as dynamic an impact as any pipeline has had in the last 20 years."


Despite the overall positive outlook, discussion regarding the region's weak infrastructure ramped up after Kinder completed the pipeline's first phase and some analysts began to wonder if REX would be obsolete before its time.


Created: March 17, 2008


Return to top


Next Page: New shale gas discoveries






Copyright © 2017 S&P Global Platts, a division of S&P Global. All rights reserved.