Across the Kinder Morgan companies more than $12 billion worth of expansion projects and joint ventures (JV) have been identified. One of them, conversion of a portion of the El Paso Natural Gas Co. (EPNG) pipeline to oil service is advancing, and a natural gas pipeline opportunity is on the radar, said CEO Richard Kinder.

“And we have many more projects to which we continue to pursue customer commitments and believe we will be able to expand in high order on these additional projects,” Kinder said last week during conference call to discuss 4Q2012 earnings.

The potential partial conversion of the EPNG pipeline from natural gas to oil service would be to carry Permian Basin crude to California markets. The management team has been talking about the project for a while (see NGI, Oct. 22, 2012), and it now has a name: the Freedom Pipeline.

The company is “working with both shippers in the Permian and refiners on the West Coast to ascertain their level of interest, and I think we will know more by the end of this quarter, certainly by the time we have the [earnings conference] call…So far, the response has been positive, but until you get the horse on the ground and put the saddle on, you don’t get on the horse,” said Kinder.

“…[I]f you look today out in West Texas at the spread, the Midland-Cushing spread is over $12. So you’ve got a big disconnect. You’ve got a lot of new production coming online out there, and even once additional capacity from Cushing down to the Gulf Coast is built, I still think you’re going to have some depressed prices. And on the other hand, of course, the Southern California market, very expensive to buy crude out there. So it’s kind of a marriage made in heaven.”

Winning regulatory approval for partial conversion of EPNG will depend upon the operator’s ability to ensure regulators that the pipeline’s existing natural gas customers will not be harmed.

“And that’s certainly what we’re going to be able to do,” Kinder said. “And part of the cost on Freedom Pipeline, a significant part of it, will be to make certain that we are able to provide the same level of service to the customers that we’re now providing. But that said, we have underutilized capacity on that line, and we can’t ever predict regulatory response, but we certainly will make the case, and we think it makes a lot of sense that this is the cheapest and the best way to get Permian oil production to California…”

If it is created, the Freedom Pipeline could carry as little as 250,000 b/d and be economic, said Thomas Martin, president of the gas pipelines business. Freedom could carry up to 400,000 b/d, depending upon customer interest.

The operator also is eying an opportunity to construct a new natural gas pipeline to Florida. Last December, Florida Power & Light Co. put out a request for proposals for a new pipeline (see NGI, Dec. 17, 2012). “We will certainly be bidding on that,” Kinder said.

“It’s very close to our SNG [Southern Natural Gas] system, where they want the pipeline to run…[T]he advantages of this massive footprint that we’ve now assembled, across the whole midstream spectrum, but particularly in the natural gas field, is just irreplaceable.” Spectra Energy Corp. also is planning to bid on the project (see related story).

“…[T]here are just tremendous opportunities that we’re finding, and $12 billion seems like a lot. But I think we will find a lot more opportunities on top of that, and they’ll be developed over the period of the next several years,” Kinder said.

He told analysts transportation volumes on the company’s natural gas pipeline network were up 11% for the year and 6% from the year-ago quarter. “Some of this was driven by electric generation load and, for example at TGP, at the Tennessee Gas Pipeline, electric generation load was up by 12% for the year.” Also lifting transport volumes were higher throughput on Fayetteville Express and “solid” throughput on the Texas intrastate pipelines, thanks in part to Eagle Ford Shale gathering volumes and higher industrial demand for gas in Mexico.

“At the natural gas segment, we have a great footprint and we’re finding lots of projects to invest our money in. We have $2.7 billion of projects currently under way, and that doesn’t include a lot of projects that we have high hopes for in the near to intermediate future.” For instance, the estimated $2 billion cost of the Freedom Pipeline is not included in this.

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