Shale Daily / NGI All News Access

Kinder Pipes Feel Shale Pain and Promise

Kinder Morgan Inc.'s (KMI) analyst day Wednesday drew the largest crowd CEO Rich Kinder said he's ever seen at the event. Perhaps it was because of "some little acquisition we've been working on" (El Paso Corp.), he suggested. Even with lawyers keeping executives mostly mum on that item, shale gas and natural gas liquids (NGL) made for plenty to talk about.

KMI and its Kinder Morgan Energy Partners (KMP) have virtually no exposure to low natural gas prices but do benefit from volume growth as demand for clean-burning and low-priced gas increases. "We're pretty indifferent to the price of natural gas on a a day-to-day basis; all we care about are the volumes that are going to be shipped though our pipelines," Kinder said.

In the longer term, "you've got to believe that natural gas is the choice for the future" if progress is to be made on carbon dioxide emissions reduction and U.S. energy independence goals, he said.

Appalachia's Marcellus Shale has been having a big impact on Kinder asset Rockies Express Pipeline (REX), which has seen its throughput vacillating due to all the new gas supply in its market area.

Tom Martin, president of Kinder's natural gas pipelines, told financial analysts that REX had been running at 1.8 Bcf/d all the way east, but last year it started to see throughput of 50-75% of that "with some gas staying in the Rockies itself." Throughput has been varying from "just under 1 Bcf/d up to 1.8 Bcf/d," he said.

There has been "a lot of discussion" about the impact of the Marcellus and Utica shales on the pipeline, Martin allowed. "We think we certainly have our fair shake at opportunities to do some firm backhauls there with the Chicago market being attractive relative to some of the East Coast markets," he said. "We think there's a good opportunity for us to do some firm backhauls into Zone 3 on REX; we've got several discussions going on there.

"We also continue our efforts...to attach additional end-use market onto REX and all the other pipes. There's opportunities in Ohio and Indiana for coal-to-gas conversion opportunities on the power plant side as well as LDC [local distribution company] customers that we're chasing. I think there are some nice near-term opportunities to create some value on REX."

Martin conceded that the challenges REX faces include a shrinking of basis between Meeker, CO, and Clarington, OH, as well as a clause that restricts full REX system backhauls (from Zone 3 to Zone 1) to contracts of a maximum 364 days.

About 2 Bcf/d of capacity on REX is under contract for an average of seven years and eight months, according to the company, which means Kinder will be collecting full reservation charges even if volumes and variable payments shrink. The Rex contracts have the third-longest remaining term in the company's stable of interstate pipelines after Kinder Morgan Louisiana (17 years and eight months) and Fayetteville Express (10 years and two months).

If the Marcellus boom is crimping REX's style up north, the Kinder Morgan Louisiana system is poised to benefit from another consequence of the shale gas surplus: potential exports of liquefied natural gas (LNG). Martin said the company has been in talks with Cheniere Energy Partners regarding its project to export LNG from its Sabine Pass terminal in Cameron Parish, LA (see Shale Daily, Dec. 19, 2011).

While the Kinder Morgan Louisiana system was constructed to carry regasified LNG to U.S. markets, it could play a role in the export of U.S. gas, Martin said. "I think this will be a good opportunity for us as those situations develop," he said. "The optionality of this asset...puts us in a position to participate in that activity if it moves forward."

The company's Midcontinent Express Pipeline also is benefiting from the shale boom as it serves production from the Barnett, Woodford, Haynesville/Bossier shales with access to markets in the Midwest, Northeast and Southeast, Martin said. The pipeline's Zone 2 could be expanded up to 300,000 Dth/d as takeaway capacity from the Perryville Hub becomes needed. Gas storage connections in the region create opportunities for hub and wheeling services on Midcontinent Express, Martin said.

As for Kinder Morgan's bid for El Paso (see Shale Daily, Oct. 25, 2011), shareholder meetings are expected to wrap up this quarter with antitrust review and the deal completed in the second quarter, Kinder said.

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