Kinder Morgan Among Developers of $2B Permian Highway Pipeline Project

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Kinder Morgan has teamed up with two other companies to develop a $2 billion natural gas pipeline project in the Permian Basin.

The proposed Permian Highway Pipeline Project (PHP Project) will be approximately 430 miles of 42-in. pipeline from the area of Waha, Texas, to the U.S. Gulf Coast and Mexico markets. Designed to transport up to 2 billion cubic feet per day (Bcf/d), the pipeline will provide an outlet for increased natural gas production from the Permian Basin to growing market areas along the Texas Gulf Coast.

Kinder Morgan Texas Pipeline LLC, a subsidiary of Kinder Morgan Inc., EagleClaw Midstream Ventures LLC, a portfolio company of Blackstone Energy Partners, and Apache Corp. announced June 25 they have signed a letter of intent for the development of the proposed PHP Project. Given the level of producer inquiry, Kinder Morgan is also evaluating the economic and hydraulic feasibility of a 48-in. pipeline with increased transportation capacity. The project is expected to be in service in late 2020, subject to the execution of definitive agreements and the receipt of construction permits.

Natural gas supply will be sourced into the PHP Project from multiple locations, including Kinder Morgans, EagleClaw’s and Apache’s existing systems in the Permian Basin, with additional interconnections to both intrastate and interstate pipeline systems in the Waha area.

The pipeline will hold capacity on Kinder Morgan’s intrastate pipeline systems in the market area, which will uniquely enable it to deliver natural gas to the Katy market hub, the Agua Dulce market hub, the Coastal Bend and Kinder Morgan Tejas headers connected to the Freeport LNG export facility, the Cheniere header connected to the Cheniere Corpus Christi LNG export facility, and numerous pipelines along the Texas Gulf Coast.

“The PHP Project is structured to provide unrivaled market optionality for Permian producers,” said Sital Mody, chief commercial officer of Kinder Morgan Natural Gas Midstream. “By contracting for space on KMI’s extensive intrastate systems, the project will offer seamless nominations to the Katy and Agua Dulce market hubs; pipeline headers into LNG export facilities on the Texas Gulf Coast; multiple pipelines delivering gas into Mexico, including Valley Crossing, NET Mexico, and [Kinder Morgan Inc.’s] Border and Monterrey pipelines; and numerous other intrastate and interstate pipelines. Additionally, shippers on the project will be able to contract for additional transportation, storage and gas sales options with KMI, whose existing intrastate systems are directly connected to most end users along the Texas Gulf Coast.”

Kinder Morgan Texas Pipeline and EagleClaw will be the initial partners (50 percent ownership each), and Apache, which has been jointly developing the proposed project, will have an option to acquire up to 33 percent equity in the project from the initial partners. Apache and EagleClaw will be significant shippers on the proposed pipeline, with Apache planning to commit up to 500 million cubic feet per day (MMcf/d). Kinder Morgan Texas Pipeline will build and operate the pipeline.

“As investors throughout the energy value chain, with extensive holdings of both midstream and upstream assets in the Permian Basin, we have a firsthand understanding of the need for additional takeaway capacity to unlock the full growth potential of the Permian Basin,” said David Foley, CEO of Blackstone Energy Partners. “We look forward to continuing to proactively address the critical infrastructure needed to support producers.”

EagleClaw CEO Bob Milam added, “EagleClaw has been in extensive discussions with pipeline operators and customers on the need for further downstream connectivity out of the Waha area for the ever-increasing volumes of associated gas. We have evaluated many different pipeline options over the last 18 months, and we believe that this project has the best and broadest end-market options that will maximize overall net-back value and end-market flexibility for our customers.”

Apache senior vice president of midstream and marketing Brian Freed said, “Apache’s participation in this second greenfield gas pipeline project out of the Permian Basin gives us additional operational flexibility and market optionality, providing unparalleled access not only to growing legacy markets along the Gulf Coast, but also to expanding LNG and export markets. The estimated in-service date of the PHP Project also coincides with growth and scale of our production forecast for Alpine High as well as other Permian production.”

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