Kinder Morgan Moves Closer to Construction of Third Permian Pipeline

HOUSTON (P&GJ) — Kinder Morgan is "moving along" with plans for a third major pipeline project from the Permian Basin—the newly named Permian Pass, which would deliver natural gas from West Texas to the Sabine area of the East Texas-Louisiana Gulf Coast, CEO Steven Kean said.

"We've got two projects to get the gas out – Gulf Coast Express and Permian Highway – and we are in discussions on a possible third pipeline, which we're calling Permian Pass," Kean said, noting that 70% of natural gas demand growth through 2030 is expected to be in Louisiana and Texas.

Houston-based Kinder Morgan is currently working with customers on the proposed 2 Bcf/d pipeline. "This is a work in progress. It's not in the backlog at this point, certainly, but it is moving along," Kean said.

By moving gas to East Texas to serve LNG demand around Sabine, Permian Pass would complement Kinder Morgan's 2 Bcf/d Gulf Coast Express (GCX) pipeline and 2 Bcf/d Permian Highway Pipeline (PHP). GCX, which is expected to begin service slightly ahead of schedule in late September, will transport Permian gas to the Ague Dulce/Corpus Christi area. PHP, which overcame a legal challenge last month, is scheduled to come online in 2020; it will deliver Permian gas nearer the center of Kinder Morgan's system to meet LNG and industrial demand in the Freeport area.

Permian Pass would be Kinder Morgan's third and the industry's fourth major Permian-to-Gulf Coast natural gas pipeline project to come online, following Whistler Pipeline's planned start-up in 2021. It was first mentioned during the company's first-quarter earnings call in April with no details of its proposed capacity or route.

"The projections are a need for a 2 Bcf-a-day pipeline essentially every year, all the way through this fourth (Permian Pass) pipeline, and then there's some expectation that there will be another one needed beyond that," Kean said, adding that these projections are "very, very early," but supported by robust Permian supply and Gulf Coast LNG demand.

"There's large supply growth in Texas and large demand growth in Texas.  We can bridge the two and connect to our premier Texas Intrastate Pipeline Network and stay entirely within the state of Texas, where we have more commercial flexibility," he said.

The Sabine area has been a growing market for liquefaction and LNG export.  Houston-based Chiniere Energy is expanding liquefaction capacity at its export facilities on the Louisiana side of the Sabine River, while an Exxon Mobil-Qatar Petroleum joint venture is expanding its export terminal on the Texas side. San Diego-based Sempra Energy also is building a export terminal, in nearby Port Arthur.

Kean's remarks came during Kinder Morgan's investor conference call to discuss its second-quarter earnings.  The company reported net income for the quarter of $528 million, compared with a net loss of $130 million during the same three-month period of 2018. Total revenues declined 6.24% from the second quarter of 2018, but operating income improved significantly to $973 million from $272 in the prior-year's second quarter.

Kinder Morgan's natural gas pipelines transported an average of 34,709 billion BTU/d in the second quarter of 2019, an increase of 9.48%, compared with 31,704 billion BTU/d in the second quarter of 2018.

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