Final Leg of Huge Natural Gas Pipeline Approved (KMP, SRE, COP)

Rockies Express Pipeline, LLC today announced that it has received certification from the FERC for the third and final phase of it’s 1,697-mile, 42-inch natural gas pipeline running from western Wyoming to eastern Ohio. The project is jointly owned by Kinder Morgan Energy Partners (NYSE:KMP), a division of Sempra Energy (NYSE:SRE), and ConocoPhillips (NYSE:COP). Since it was first announced in November 2005, the first two phases of the project have been completed, and the pipeline now transports 1.8 billion cubic feet/day of natural gas to Audrain County, Missouri. The final 638-mile segment is expected to become partially operational by the end of this year.

Kinder Morgan originally owned 67.7% of the project and SRE owned 33.3%. In June 2006, ConocoPhillips purchased 24% from Kinder Morgan and may purchase an additional 1% once the pipeline is completed. This is one of the largest natural gas pipelines ever built in the US, and is expected to close the price differential (about $3/thousand cubic feet) between Rocky Mountain gas and Gulf of Mexico gas. The state of Wyoming was so eager for the pipeline that it agreed to ship 200 million cubic feet/day on the new line.

The pipeline is expected to exceed its current projected cost of about $5 billion by 5%-10%. The first cost estimate tagged the project at about $3 billion, with an expected in-service date of December 2007. But the project partners can certainly afford it, and the eventual payoff will certainly be a positive addition to cash flow. That’s what makes pipelines so attractive: they’re not really transporting oil or gas, but cash.

Paul Ausick
June 2, 2008