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REX-East to Lebanon, OH, in Service by End of June -- KMP CEO

The Rockies Express Pipeline (REX) is "about two-thirds finished" and the REX-East portion that runs to Lebanon, OH, will be ready for service by the end of this month, Kinder Morgan Energy Partners LP (KMP) CEO Rich Kinder said Tuesday.

The pipeline, designed to carry Rocky Mountain gas supplies to East Coast markets, has been plagued by cost overruns and weather delays. However, Kinder, who spoke at the Reuters 2009 Global Energy Summit in Houston, said REX would be at the terminus in Clarington, OH, by November.

The pipeline system consists of three sections: REX/Entrega, REX-West and REX-East. The REX/Entrega leg and REX-West, a 713-mile, 42-inch diameter pipeline that extends from Cheyenne Hub to Audrain County, MO, are in operation. The final piece is the REX-East leg, a 638-mile, 42-inch diameter pipeline extending from an interconnection with the eastern terminus of REX-West in Audrain County through Illinois and Indiana, terminating at an interconnection with three pipelines at Clarington Hub in Monroe County, OH.

The in-service date for REX-East to Lebanon, OH, has been an ever-changing target. Once it's completed, it would have a capacity of 1.6 Bcf/d. When the line is completed to Clarington, the system would have capacity of 1.8 Bcf/d (see NGI, May 11).

Kinder blamed some of the recent delays on the lack of fixed-price contracts.

"We built the first part of this under fixed-price contracts," he said. "Now we're in the middle part of it, [REX-East]; we're just finishing up, and we couldn't get fixed-price contracts...A lot of the time [when there are no fixed prices], we run the risk for more overruns and weather problems that fall back on the owners."

REX is a joint venture of KMP, Sempra Pipelines and Storage and ConocoPhillips.

"The last portion, from Lebanon to Clarington, we're back on fixed-price contracts," Kinder said. "We just couldn't get fixed-price contracts on the construction phase for that one part of the pipeline."

REX has had "cost issues, and it's easy to blame a lot of that on the weather we've had," he said. "It's been an unusually wet winter and spring, and that's delayed the progress also. And we directionally drill under a lot of rivers. That's a lot of water, and a lot of flood stages on those rivers where you can't get in and directionally drill...

"We have had overruns, but most of the problems have been solved."

Another possible cost issue involves a motion by Murray Energy Corp. for an immediate stay of construction on a 20-mile stretch of REX-East in eastern Ohio should be denied, according to a response REX filed at FERC Thursday. The Commission previously rejected the coal company's claims.

In its filing with the Federal Energy Regulatory Commission (FERC), Murray requested an immediate stay of pipeline construction activities between mileposts 608.9 and 639.1, an area known as "Spread K." FERC authorized construction of the Spread K portion of the pipeline on March 19. Murray previously requested a rehearing of that decision.

Construction of the Spread K portion, which crosses approximately eight miles of Murray-controlled coal reserves, would cause "irreparable injury" to Murray, the company said. Murray said the pipeline will be built directly over its active underground longwall coal mining operations. REX's construction plans "pose grave dangers to underground mine workers, the public and the REX pipeline itself," Murray said in its filing. "REX is relying on a hastily prepared flawed plan, which this Commission has not reviewed and approved."

In its filing, REX said "there is no evidence that Murray will be prevented from mining its coal." REX said it has committed to extensive mitigation measures to assure that Murray's coal mining operations may take place.

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