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REX Flows into the Rockies in January—A Fluke or a Sign of Things to Come?

Energy

By Jon Bowman  |  February 23, 2022

January 2022 marked a potentially major shift in the Western U.S. winter flow dynamics. For the first month ever, average net flows on the Rocky Mountain Express (REX) natural gas pipeline were to the West—flowing from the midcontinent into the Rockies. This milestone marks a reversal of the usual pattern of eastern flows, which move gas from the Rockies to markets in the midcontinent and beyond. Instead, January saw shippers seeking to take advantage of comparatively high pricing in Western hubs such as Opal, eschewing the weaker pricing levels in more traditional markets.

The Culmination of a Trend

While this shift to net western flows in winter 2021/2022 may signal a significant change in the winter flow dynamics between the Rockies and the midcontinent, it is important to note that it is the culmination of a trend rather than an abrupt shock as net flows on REX in winter 2019/2020 and winter 2020/2021 were only marginally to the East.

rex-net-flows-rockies-to-midcon

The abrupt switching between eastern and western flows on REX observed in January and February also hints that shippers are quickly responding to an underlying price signal. An examination of the underlying data strongly suggests that this is the case.

Western flows on REX were as high as ~0.5 Bcf/d in early January 2022 before briefly changing direction again late in the month due to a winter storm in the Eastern U.S. In early February, westbound flows returned and were as high as ~0.6 Bcf/d before once again reversing to the East in response to yet another strong winter storm in mid-February.

The timing of these western flows on REX correlated closely to periods when Opal pricing was strong relative to that at Chicago City Gate—a key midcontinent hub. In other words, REX net flows were to the West when Opal pricing was strong, and REX net flows returned to the East when the spread between the two hubs was small.

opal-pricing-relative-to-midcontinent-pricing

This pattern implies that shippers were quick to take advantage of relatively strong Opal pricing by moving volumes West before reverting to sending volumes East when the advantageous spread disappeared.

Conclusion

The obvious question raised by these developments is whether this trend will prove to be transitory. The data from early 2022 certainly suggest a willingness on the part of shippers to send volumes West on REX when favorable spreads between Opal and Chicago exist. The same is likely to happen in future years when similar situations manifest. However, the frequency with which this dynamic will emerge remains an open question as the relative strength of winter pricing at Opal is a function of the supply and demand factors at work in the winter months in the Western U.S. and beyond.

BTU Analytics is a FactSet Company. This article was originally published on the BTU Analytics website.

The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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Jon Bowman

Energy Analyst

Mr. Jon Bowman is an Energy Analyst at FactSet. In this role, he focuses on natural gas economics and basis forecasting. Prior, he held several positions related to resource planning, forecasting, and pricing analysis in the utilities and manufacturing industries. Mr. Bowman earned a B.S. in Mathematics from Tulane University and an M.S. in Industrial Engineering from the University of Illinois at Urbana-Champaign.

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The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.