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Stock Strategist

Tallgrass Focuses on Rockies for Growth

Stephen Ellis

After a complete reversal of natural gas flows in the Northern United States over the past few years thanks to the emergence of Marcellus/Utica gas production,  Tallgrass Energy Partners (TEP) has expertly repositioned the Rockies Express Pipeline, or REX, its crown jewel. Over the past few years, Tallgrass has made the pipeline bidirectional and is able to move 2.6 billion cubic feet per day of gas out of the Northeast. Producers have eagerly snatched up the capacity, signing contracts for 15-20 years, greatly mitigating the recontracting risk due to occur in 2019 and 2020 as its original west-to-east contracts expire.

Still, REX and Tallgrass must continue to be nimble. According to RBN Energy, there are about 20 pipelines under consideration, with the potential to add nearly 20 bcf/d of takeaway capacity for the Marcellus/Utica region over the next few years compared with existing gas production of about 27 bcf/d out of the Marcellus and Utica. Not all of these pipelines are likely to be built, but it’s clear that the region will be amply supplied with takeaway capacity within a few years. The key advantage that REX still holds is its 15 interstate pipeline connects along its recent Zone 3 addition across Missouri, Illinois, Indiana, and Ohio, offering access to these Western markets versus competing pipelines that are largely heading south and southeast. As a result, we believe REX will maintain its relevance.

Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.