Impacts and Recommendations Regarding New Rex Zone 3 Flows and 2 New Pipeline Projects

Lynette Barrus

REX Zone 3 East-to-West flows have started as of about August 1st, 2015. These flows will most likely be impacting the Midwest region in the immediate future (Chicago and Michigan markets). The combination of Chicago market demand dropping and the influx of Marcellus gas will drive Chicago City gate index pricing below the NYMEX settlement.


However, while the NGI Chicago may trade below NYMEX at times, it may still be beneficial to contract tied to the NYMEX for winter pricing stability. NGI Chicago may still be susceptible to larger price swings in the winter months. Suppliers in this region are also forecasting that basis pricing will be lower in the Chicago and Michigan markets once the expansion pipeline comes online.

As this project comes online it should help resolve some of the oversupply issues seen in the OH, PA, and WV regions. As this “trapped” gas begins flowing west to the North Eastern Chicago/Michigan markets there is the potential for short term increases to the prices in Ohio and PA.


The NEXUS and ROVER pipeline projects of 2017 will bring even more gas into the Midwest and Mid continent regions, and improve pricing. When combined, these three pipeline shifts will also have far reaching effects, stretching to the West Coast. One supplier stated, “…with all the extra gas coming into the Midwest, basis should lower in that region causing the REX gas to move out west and drop western prices.”

The shifting of gas flow from North to South or East to West leaves the potential for all Gulf gas and all Texas gas to flow back to California and other western markets. One supplier indicated, “…we are not seeing it yet, but eventually prices in California, Arizona and Nevada markets will drop.”


Midwest region: Consider holding off contracting through August or until mid-September. Historically, we often see another low in the market during September before the winter months hit. With this note, as well as the East to West flow likely to lower basis pricing in the Midwest Region, it is recommended we hold off on booking immediate deals and let the market play out to see the impact. We would recommend refreshing any current pricing to provide a better look at where the market is headed.


Currently there is no impact on market pricing in the West. In western markets, with the two other pipelines coming online in 2017, consider contracting for only 12 to 24 month terms versus 36 or more. This will allow an opportunity to revisit pricing in 2017 after the pipelines come on line. At that time, any significant impacts on Western market pricing may be apparent.

Contributors: Lynette Barrus, Associate Energy Procurement Analyst, Dave Marson, Senior Energy Procurement Analyst and Travis Nguyen, Associate Energy Procurement Analyst at Ecova.

Related resources:


The information in this page is offered only for general informational and educational purposes. It is not offered as and does not constitute legal advice.

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