FERC Thursday approved Tallgrass Interstate Gas Transmission LLC’s (previously Kinder Morgan Interstate Gas Transmission LLC) proposal to sell a 432-mile mainline segment to affiliate Tallgrass Pony Express for the purpose of converting it to transport crude oil from the Bakken and Denver-Julesburg/Niobrara shales.

“Tallgrass states that the market for gas transportation on the Pony Express Pipeline is in decline due to emerging shale supplies in the East and new pipeline takeaway capacity out of the Rocky Mountains. At the same time, Tallgrass asserts the demand for oil transportation to move emerging oil supplies in the Bakken Formation within the Williston Basin in Montana, North Dakota and the Province of Saskatchewan is growing. Therefore, Tallgrass filed [this] application…to abandon a segment of the Pony Express mainline by sale to Tallgrass Pony Express,” the order said [CP12-495].

To maintain 104,000 Dth/d of natural gas service to existing firm customers following the abandonment, Tallgrass proposes to construct replacement facilities, including a 14,200 hp compressor station (Tescott Compressor Station), two lateral pipelines (three miles and 22 miles in length), and two booster compressor units.

Tallgrass estimates that the cost of the replacement facilities will be $57.25 million. Tallgrass Pony Express will reimburse Tallgrass for the costs associated with abandoning the facilities, estimated at $8.4 million.

Tallgrass has entered into transportation agreements with four other natural gas pipelines (Natural Gas Pipeline Co. of America LLC, Southern Starr Central Gas Pipeline, Trailblazer Pipeline and Wyoming Interstate Co. Ltd.) in order to maintain service for long-term gas customer needs of approximately 104,000 Dth/d.

In 2011 Tallgrass floated the idea of converting a portion of its line to its original function of carrying crude, citing the booming oil development in the Bakken and the Denver-Julesburg/Niobrara shales and a shrinking demand for Rockies gas in the East.