Great Update On The REX -- March 18, 2016; Peabody Warns Of Bankruptcy

Being reported all over: natural gas will surpass coal this year in US for electricity production. 

The U.S. Energy Information Administration believes natural gas will provide 33% of generation in 2016, while coal’s share will likely fall to 32%. That would be the first time that natural gas beats coal on an annual basis. 

The EIA says natural gas and coal each contributed one-third of all electricity generation in 2015. 

Coal accounted for half of all U.S. electricity generation between 2000 and 2008. 

But coal use has declined sharply over the last decade, as the U.S. fracking boom flooded the market with cheap natural gas. As a result, coal companies have come under intense pressure, and the Obama administration’s efforts to implement new regulations on coal-fired power plants have created even more uncertainty for the industry. 

Some coal plants have shifted generation to natural gas in response. 

Peabody Energy (BTU), the largest coal miner in the U.S., said this week it doesn’t expect to meet certain financial obligations by March 31, warning that bankruptcy could be the next step. 

Peabody, which has reported annual losses four years running, noted that “sustained depressed” prices have hurt its bottom line. Patriot Coal, a spinoff of Peabody, went through bankruptcy last year. Alpha Natural Resources, another major coal miner, filed for Chapter 11 bankruptcy protection in August 2015.

Active rigs:

	3/18/2016	03/18/2015	03/18/2014	03/18/2013	03/18/2012
Active Rigs	31	107	191	186	205

RBN Energy: again, RBN Energy does a superb job on their energy updates. This time is an update on the REX, Zone 3 east-to-west expansion.

Tallgrass Energy’s Rockies Express Pipeline (REX) last week received final approval to begin construction on its Zone 3 Capacity Enhancement expansion project (Z3CE), which would expand east-to-west capacity out of the Marcellus/Utica shale production area to a record 2.6 Bcf/d. This project comes on the heels of REX’s East-to-West expansion (E2W), which came online last August and in one fell swoop gave Northeast producers their first substantial westbound firm forward-haul transportation capacity, totaling a full 1.8 Bcf/d. The upcoming Z3CE capacity (0.8 Bcf/d) will mark yet another milestone in the Great Pipeline Reversal that’s expected to ease supply congestion in the Northeast and support beleaguered Marcellus/Utica pricing points. That new capacity is not due in-service until late 2016. But now with nearly a full winter’s worth of pipeline flow data for the first E2W expansion, we can get a preview of potential impacts of the additional capacity on flows and pricing. Today we look at winter-to-date gas flows on REX and what they tell us about the Marcellus/Utica market.

Last June, in Big Deal! REX to Open the Floodgates, we recapped REX’s inception as an eastbound pipeline for Rockies gas producers to send their gas to higher priced Northeast markets, and then covered the impact that shale supply growth and price discounts in the Northeast have had on the region – culminating in REX, along with other Northeast-bound pipes, to provide for flows moving in the opposite direction. In the case of REX, that means it now receives supply near Clarington, OH and the general vicinity, and then moves it west to interconnect with other interstate pipelines along its easternmost Zone 3 leg. We detailed the REX reversal efforts and impacts prior to E2W going into service, including the build-out and expansion of the Seneca Lateral and third-party receipt point connections near Clarington, OH. Until that point, design capacity and long-term shipper contracts for such westbound flows were limited to 600 MMcf/d, though operationally, REX had been flowing close to or more than 1.0 Bcf/d of Marcellus and Utica supply west since February 2015.

Then, last fall (August 1, 2015), REX flipped the switch on new E2W capacity, and just like that an incremental 1.2 Bcf/d of firm contracts kicked in for “forward-haul” capacity westbound from the Clarington, OH area to Moultrie County, IL. We documented the in-service of that expansion in Waiting For a REX Like You. This capacity was in addition to the 600 MMcf/d of westbound commitments already in place for supply from MarkWest’s Seneca processing plant via the Seneca Lateral. Together, they brought the total Zone 3 east-to-west contracted capacity to a total 1.8 Bcf/d, backed by 20-year firm contracts for east-to-west flows from four shippers besides MarkWest:  American Energy Appalachia, EQT Energy, Gulfport Energy Corp, and Rice Energy. In addition to expanding bidirectional capacity of the mainline pipe in its Zone 3, E2W also increased delivery point capacity at interconnects with ANR in Shelby, IN, Panhandle Eastern Pipe Line in Putnam, IN, Trunkline in Douglas County, IL and Midwestern in Edgar, IL, and Natural Gas Pipe Line of America (NGPL) in Moultrie, IL.