As part of Kinder Morgan Inc.’s US$ 22.8 billion takeover of El Paso Corp. earlier this year, its pipeline business Kinder Morgan Energy Partners LP has adhered to federal requirements that it sells certain assets in the Rocky Mountains.
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Kinder Morgan owns over 38 000 miles of pipelines and El Paso, as was, owned the largest natural gas pipeline system in North America, with more than 43 000 miles of pipelines.
Kinder Morgan was ordered to divest some US$ 3.3 billion in assets to satisfy antitrust regulators, who feared competition would be compromised in the Rockies region. As El Paso was Kinder Morgan’s major competitor in the Rocky Mountains, the US Federal Trade Commission (FTC) required that Kinder Morgan redressed the balance by selling some properties and assets. “Without the pipeline divestitures, the combined firm would dominate natural gas transportation options in the five Rockies production areas”, the FTC stated earlier this year.
So, Kinder Morgan will sell its 50% interest in the Rockies Express Pipeline along with Kinder Morgan Interstate Gas Transmission, the Trailblazer Pipeline Company, the Casper-Douglas natural gas processing facilities and the West Frenchie Draw treatment facilities in Wyoming. Buying these assets is Tallgrass Energy Partners, a private-equity funded company that promises to grow the existing pipeline business in the Rockies. Tallgrass will also continue with Kinder Morgan’s plans to convert the Pony Express pipeline to ship oil, with a target start-up date of the first half of 2014: Tallgrass CEO David G. Dehaemers Jr. has said in a statement that the conversion of the Pony Express pipeline will be a “significant focus for near-term growth”.
Work is full speed ahead on the conversion of Pony Express from natural gas to crude oil. The conversion of the 432 mile line, which runs from Wyoming to Kansas, will create a new route for up to 145 000 bpd of oil produced in North Dakota’s Bakken oilfields to reach refineries in Oklahoma and Texas.
Once converted, this (now) oil pipeline will cross a corner of the much-defended Ogallala Aquifer in Nebraska. The aquifer, which is a subsystem of a huge underground mega-system called the High Plains Aquifer, is made of permeable layers of sand, sandstone and gravel and contains billions and billions of gallons of water. The system covers 174 000 square miles beneath eight different states, in an area from North Dakota to Texas, and from Nebraska to parts of New Mexico. Nebraska depends vitally on the water found in the aquifer and 20% of the irrigated farmland in the US relies upon it.
Let’s remember the debate that surrounded the routing of the proposed Keystone XL (KXL) line across the Ogallala Aquifer. Subsequently, a new Nebraska law governs the citing of new oil pipelines away from this water source. Since the Pony Express line is not a new pipeline, it is exempt from the regulations, unlike KXL, which was redrafted to bypass the aquifer.
The Pony Express line is not competitor of, or on a par with, Keystone XL but the Keystone XL plans do include a lateral line that will pick up some conventional crude oil from North Dakota. This word ‘conventional’ is key: the Pony Express will not transport oilsands-derived products and will not transport ‘foreign’ oil: both important subjects to opponents of Keystone XL.
The Rocky Mountains offer instead a homegrown source of oil and natural gas for Americans and production is set to grow over the next few years. Natural gas production is expected to increase by 12% to 5.51 trillion ft3, and oil production by 18% to 1.11 million bpd by 2019. No wonder this pony is saddled up and ready to ride, new ownership or otherwise.