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Kinder Morgan Trims Expansion

Zacks Equity Research

Kinder Morgan Energy Partners L.P. (KMP) has downsized its capital outlay by 18%, from $5 billion to $4.1 billion, for the planned extension of its Trans Mountain pipeline that transfers Canadian oil to the Asian markets.

Kinder Morgan has signed 20-year contracts for approximately 510,000 barrels per day (bpd) on its pipeline with fewer shippers than anticipated, which led the partnership to increase the capacity to 750,000 bpd from the existing 300,000 bpd. Earlier, the partnership had plans to augment the capacity to 850,000 bpd.

The partnership’s preliminary estimations had showed it would get adequate contracts to support such a massive expansion. But a few prospective shippers were unsuccessful in attaining their boards' approvals by the closing date, triggering the reduction.

Further, the forecast of liquids output increasing by two times from the Alberta oil sands in 10 years, backed Kinder Morgan’s $5 billion expansion plan. The partnership’s pipeline expansion proposal is only the second one targeted at accessing entry into the booming Asian markets. The first was the one endorsed by Enbridge Inc. (ENB) to link Alberta oil sands with markets of Kitimat and British Columbia, at an estimated cost of $5.5 billion.

Currently, the partnership’s project is countering objections from the environmental groups and a few native communities in British Columbia as well as from the Vancouver city council as it would raise the tanker traffic in the city’s harbor.

The partnership expects to file regulatory applications towards the later half of 2013, with commissioning scheduled for 2017. The project would help Kinder Morgan to add another pipeline besides the existing one for much of the 1,150 km (715 mile) route.

Kinder Morgan holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain a Neutral rating on the stock.

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