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Kinder, Partners Pondering Second Permian Natural Gas Pipeline to Texas Coast, Mexico Markets

A Kinder Morgan Inc. (KMI) subsidiary is proposing a partnership with a Blackstone Energy Partners unit and Apache Corp. to build a second natural gas system from the Permian Basin to markets along the Texas coast and potentially into Mexico.

On Monday, Kinder Morgan Texas Pipeline LLC, Blackstone Energy Partners’ EagleClaw Midstream Ventures LLC and Apache Corp. said they have a letter of intent for the proposed Permian Highway Pipeline Project (PHP), a 42-inch diameter system that would run about 430 miles from the Permian to markets along the Texas coast and potentially into Mexico.

The estimated $2 billion system would move gas from the Waha hub in West Texas. The potential partners also are pondering an even larger system.

“Given the level of producer inquiry, KMI is also evaluating the economic and hydraulic feasibility of a 48-inch pipeline with increased transportation capacity,” management said.

PHP could be in service in late 2020, subject to executing definitive agreements and receiving construction permits.

KMI executives had said during a first quarter conference call that preliminary discussions were underway for a second pipeline from the Permian to complement the 2 Bcf/d Gulf Coast Express (GCX) Pipeline Project. GCX had been the first greenfield pipeline project for gas supplies from the basin, which has seen a marked increase in associated gas production given all the oil drilling there. Apache has 500 MMcf/d of transport capacity via GCX to transport its Permian gas, which has been increasing in the Alpine High of the Delaware sub-basin.

Natural gas supply would be sourced from multiple locations, including existing KMI, EagleClaw and Apache systems in the Permian, with additional interconnections to intrastate and interstate pipeline systems in the Waha area.

PHP would hold capacity on KMI’s intrastate pipeline systems in the market area, enabling it to deliver gas to, among other systems, the Katy hub near Houston; Agua Dulce near Corpus Christi; Coastal Bend and Kinder Morgan Tejas headers connected to the Freeport liquefied natural gas (LNG) export facility; and Cheniere Energy Inc.’s header connected to the Corpus Christi LNG export facility, as well as numerous pipelines along the Texas coast.

KMTP and EagleClaw initially would be 50/50 partners, although Apache, which also has been developing the proposed project would have an option to acquire up to 33% equity.

Apache and EagleClaw are to be significant shippers on the proposed pipeline, with Apache planning to commit up to 500,000 Dth/d.

KMTP would build and operate the pipeline.

“The PHP Project is structured to provide unrivaled market optionality for Permian producers,” said Kinder Morgan Natural Gas Midstream’s Sital Mody, chief commercial officer.

“By contracting for space on KMI’s extensive intrastate systems,” the company said PHP would also “offer seamless nominations” to multiple pipelines delivering gas into Mexico, including Valley Crossing, NET Mexico, and KMI’s Border and Monterrey pipelines.

Shippers also “will be able to contract for additional transportation, storage and gas sales options with KMI, whose existing intrastate systems are directly connected to most end users along the Texas Gulf Coast,” Mody said.

“As investors throughout the energy value chain, with extensive holdings of both midstream and upstream assets in the Permian Basin, we have a firsthand understanding of the need for additional takeaway capacity to unlock the full growth potential of the Permian Basin,” said Blackstone Energy Partners CEO David Foley.

EagleClaw, the largest privately held gas gathering and processing business in the Permian’s Delaware sub-basin, has long-term dedications from Permian producers for more than 300,000 acres.

“EagleClaw has been in extensive discussions with pipeline operators and customers on the need for further downstream connectivity out of the Waha area for the ever-increasing volumes of associated gas,” said CEO Bob Milam. “We have evaluated many different pipeline options over the last 18 months, and we believe that this project has the best and broadest end-market options that will maximize overall net-back value and end-market flexibility for our customers.”

Apache’s Brian Freed, senior vice president of midstream and marketing, said participating in the second greenfield gas pipeline from the Permian would give the company “additional operational flexibility and market optionality, providing unparalleled access not only to growing legacy markets along the Gulf Coast, but also to expanding LNG and export markets.

“The estimated in-service date of the PHP Project also coincides with growth and scale of our production forecast for Alpine High, as well as other Permian production.”

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