The CEO of Kinder Morgan Energy Partners LP (KMP) told energy analysts last week he remains "kind of a contrarian in the long run" when it comes to the current price of natural gas.

"I think that lower gas prices are actually going to be very much a positive for Kinder Morgan and the other midstream energy players because I think what we're demonstrating is that we have a tremendous supply of natural gas, 100 years plus probably, with all the shale in the Lower 48," Rich Kinder told financial analysts during a quarterly earnings conference call late Wednesday.

"That makes gas a lot more marketable from the standpoint of using it for future electric generation," he said. "And if you really look at the situation, the only real way, in my opinion, to make a real credible impact on CO2 [carbon dioxide] emissions, in terms of reducing it, is to have massive new electric generating capacity where natural gas replaces coal."

Kinder made similar comments last month (see NGI, June 8).

Given the abundance of domestic gas reserves "and given the relatively cheap prices now, I think that's going to be very positive in the long run for the overall usage of natural gas, and if you do that, that's going to vastly increase the need for infrastructure, which is, of course, our sweet spot," said the CEO.

KMP has offset some of the negative impact of low natural gas prices by "just being good buyers and sellers of gas and preserving the margin," Kinder said. "The other impact has been that some of our contracts are tied to a percentage, and then as prices go lower that percentage shrinks also.."

If gas prices remain at their current mark, they would "continue to have somewhat of a negative impact" on KMP's gas pipelines in Texas "for the rest of the year," he said.

KMP's quarterly profits fell 11% from a year ago, but "considering the ongoing recessionary environment and economic headwinds," the partnership is "better positioned at mid-year than we expected to be just last quarter," Kinder told energy analysts.

Net income for the period reached $323.8 million (33 cents/unit), compared with $362.2 million (65 cents) reported in 2Q2008. Quarterly revenue plunged 53% to $1.65 billion. Average realized prices fell 6.7% for oil and 56% for natural gas.

The Houston-based pipeline and terminal operator still managed to beat Wall Street's forecast (29 cents/unit) on average by 4 cents/unit.

Profits for KMP's natural gas pipeline segment fell almost 10% from a year ago to $164.6 million, "largely related to timing of storage margins and operational expenditures relative to last year," Kinder said. "However, these assets were also impacted by tough market conditions, which resulted in reduced sales and processing margins."

Service began during the quarter on portions of three large domestic gas projects in which KMP is participating.

Rockies Express-East, a 450-mile segment of the massive Rockies Express Pipeline (REX) system that KMP is building with partners Sempra Energy and ConocoPhillips, began service to Lebanon, OH, on June 29 (see NGI, July 6).

"The next and final step is service to Clarington, OH," Kinder said. The final REX-East construction phase has been "a little more challenging...more rocks and hills," but a Nov. 1 completion date is still in place, he said.

"We have all of our right-of-way and all of our permits and clearances, and frankly, this is the first time we've started a REX segment with all those clearance," Kinder told analysts. "I think we have some open field running on the last leg because we're building during the prime part of the construction season from June to October."

Asked whether REX could be extended farther east, KMP's Steven J. Kean said nothing is imminent, but "it's something that we continue to look at. We have conversations with the LDCs [local distribution companies] on the East Coast. We've recently been talking to Marcellus [Shale] producers...It's just something that we want to keep as a potential growth option available for us, and so we keep the discussion going...

"We do feel like eventually the gas needs are continuing to move on, and we're not that far from some of the Marcellus production that is under development right now. So it's just something we want to continue to keep our eyes on and see what opportunities might be presented..."

The Kinder Morgan Louisiana Pipeline also ramped in June (see NGI, June 22). And partial service began in April on the 506-mile Midcontinent Express Pipeline (MEP), a joint venture with Energy Transfer Partners LP. The final leg of MEP is scheduled to begin service by Aug. 1. (After KMP's earnings call, an explosion last Wednesday killed one person and injured several others as crews were testing pressure on a portion of the MEP line in Mississippi (see related story).

KMP also announced that its general partner, Knight Inc., which took KMP's parent Kinder Morgan Inc. private three years ago (see NGI, June 5, 2006), has changed its name back to Kinder Morgan Inc.

"We think it will eliminate some confusion because nobody knows who Knight is and most people [know] who Kinder Morgan is," said Kinder. "And this was something that at the time of the privatization, the rating agencies preferred that we do, to separate the two. We did that. Since then, at Kinder Morgan Inc. we've paid down the great majority of the debt, of course, and so we no longer need that same degree of separation so everybody was agreeable to us going back to the original name of Kinder Morgan Inc.

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