Kinder Morgan Energy Partners LP (KMP:$83.40,00$-1.43,00-1.69%) said Friday it has cancelled plans for the $2 billion Freedom pipeline, a conduit that would have brought a direct stream of West Texas crude to refiners on the U.S. West Coast.
The cancellation underscores the growing difficulty pipeline companies are having in selling new large-scale projects as oil producers and refiners increasingly rely on railroads to ship crude around. Once seen as temporary necessities to deliver oil from emerging oil-producing regions in Alberta, Texas and North Dakota, railcars have become a permanent fixture of the North American energy landscape because they allow refiners more diversity of supply.
This trend means that pipeline giants like Kinder Morgan will have to focus on smaller pipeline projects and branch out into other transportation segments, said Darren Horowitz, analyst at Raymond James.
"It's probably the smaller-scale, smaller-scope projects getting built, not the multi-year, billion dollar type projects," Mr. Horowitz said.
In my opinion, the real reason is that it is too risky to build infrastructure in California. The environmental wackos will add complexities and delays that make forecasting a cost to build that will return a good profit almost impossible to plan for. What KMP should do is build the pipeline to Mexico, just south of the California border. I'm happy with this prudent business decision.
Km exports natgas to Mexico, but has good reasons not to want to own pipelines in Mexico. Km has no problem building in California. Most of the line is already in. Refiners want shorter duration contracts, 5 years instead of pipelines twenty (20).