Kinder Morgan, Sempra secure commitments for Rockies Express
$4 billion pipeline will run from Rockies to east coast
Mikaila Adams, OGFJ Associate Editor
Kinder Morgan Energy Partners LP and Sempra Pipelines & Storage, a unit of Sempra Energy, have secured shipper commitments for the more than $4 billion Rockies Express Pipeline project that will transport natural gas from the prolific producing basins in Wyoming and Colorado to eastern Ohio.
The companies previously stated they would wait to ensure shipper interest before moving forward with the 1,323-mile pipeline. The project will be one of the largest of its kind ever constructed in North America and will have the capability to transport 1.8 bcf/d of natural gas.
Binding firm commitments have been secured from shippers for all of the capacity, and additional agreements have been reached that will enable the Entrega and Overthurst pipelines to connect with and extend the reach of Rockies Express. The project will be brought on line in segments and is expected to be completed by June 2009, subject to regulatory approvals.
“We are absolutely thrilled that the Rockies Express Pipeline project has been brought to fruition,” said KMP chairman and CEO Richard D. Kinder. “Rarely has a single pipeline had the potential to have such a transforming effect on the North American natural gas industry. The pipeline will provide much needed takeaway capacity for Rockies production and deliver it to growing markets in the Midwest and East. Rockies Express will also serve as a catalyst for additional energy infrastructure development along its significant geographic footprint, and our next goal is to develop storage along the pipeline to provide additional growth opportunities for our shippers and investors.
“Discussions with shippers also indicate there is an opportunity to extend the original scope of the project further eastward, and we will begin working shortly to secure such commitments,” added Kinder. “The project is expected to become accretive to KMP unitholders as each phase of the pipeline is brought into service.”
With more than 25 interconnects to intrastate and interstate pipelines, the project will allow natural gas producers to address the price disparity between Rocky Mountain basins and other parts of the country. By increasing the availability of reliable supplies, the project has the potential to reduce natural gas prices to consumers across the country.
With a potential recoverable reserve base of more than 200 tcf of resources, and with more than 200 rigs actively drilling, the Rocky Mountain basins are poised to become the most significant natural gas play in the United States.
“The Rockies Express project has been a collaborative effort and a model for infrastructure development within the industry,” said George Liparidas, president of Sempra Pipelines & Storage. “Not only will the project provide benefits for producers and end users, but also for the communities along the pipeline route by generating property tax payments, employment opportunities and increased spending on local goods and services.”
KMP and Sempra Pipelines & Storage recently closed on the purchase of Entrega Pipeline LLC from an affiliate of EnCana Corp. and commenced providing interim service from the Meeker Hub in Colorado to Wamsutter in Wyoming. In addition, Rockies Express has executed binding definitive agreements with Questar Overthrust Pipeline Co., a wholly-owned subsidiary of Questar Corp., for a long-term lease of 625 MMcf/d of capacity on Overthrust that will extend the reach of Rockies Express from Wamsutter to the Opal Hub in Wyoming. The capacity lease on Overthrust can potentially be expanded up to 1.5 bcf/d.
These projects will significantly impact the bottom line of both Kinder Morgan Energy Partners LP and Kinder Morgan Inc. The over $4 billion Rockies Express project is a 1,323-mile pipeline that will transport up to 1.8 bcf/d of natural gas from the Rockies to eastern Ohio. KMP will operate the pipeline and owns two-thirds of the project, while Sempra Energy has a one-third ownership stake.
The approximately $500 million Kinder Morgan Louisiana Pipeline is solely a KMP project and will provide 3.2 bcf/d of takeaway capacity from the Cheniere LNG facility in Louisiana and deliver natural gas into the country’s pipeline network.
While these assets will be part of the KMP portfolio, KMI will also benefit because of its ownership of the general partner of KMP. Once completed, the combined financial impact of these projects is expected to allow for an increase of $0.15 to $0.20 in cash distribution per unit at KMP and $0.50 to $0.60 in earnings per share at KMI.
Subject to regulatory approvals, the entire Rockies Express project is expected to be completed by June 2009, and the entire Kinder Morgan Louisiana Pipeline is expected to be completed by April 1, 2009. However, both of these projects are expected to be substantially accretive to cash distributions and earnings prior to these dates.
The first 710 miles of the Rockies Express project is projected to be in service by Jan. 1, 2008, and the lateral segment of the Kinder Morgan Louisiana Pipeline that will interconnect with KMI’s Natural Gas Pipeline Co. of America is projected to be in service by Oct. 1, 2008.
According to Kinder, KMP intends to finance the projects with 50% equity and 50% debt. “We will issue equity at KMP for these projects in tranches to coincide with construction and in-service dates. The permanent debt for the Rockies Express Pipeline, as a joint venture, will likely be non-recourse to KMP. We have already reviewed these financing plans with the ratings agencies and will continue to work with them to ensure that they are comfortable with our approach.”OGFJ
The 1,323-mile Rockies Express will transport up to 1.8 bcf/d of natural gas from the Rocky Mountain region to eastern Ohio.