Kinder Morgan axes Northeast Energy Direct gas pipeline project

Kinder Morgan Inc. (NYSE: KMI) said April 20 that it has suspended its controversial Northeast Energy Direct natural gas pipeline project, designed to pump more gas into the northeast U.S.

Company President and CEO Steve Kean said: “We reduced our growth capital backlog from $18.2 billion at the end of the fourth quarter 2015 to $14.1 billion at the end of the first quarter 2016. The reduction in our backlog was driven primarily by the removal of the Northeast Energy Direct (NED) Market project due to insufficient contractual commitments from customers in the New England market, and the removal of the Palmetto Pipeline project following unfavorable action by the Georgia legislature regarding eminent domain authority and permitting for petroleum pipelines.”

Kean added: “We continue to focus on high-grading our growth project backlog to allocate capital to the highest return opportunities by reducing spend, improving returns and selectively joint venturing projects where appropriate. As a clear demonstration of these efforts, we have reduced our 2016 growth capital forecast to approximately $2.9 billion, a $1.3 billion reduction from our December 2015 guidance of approximately $4.2 billion. We believe these efforts will allow us to more quickly strengthen our balance sheet and will benefit our company, employees and our investors for the long term.”

The Sierra Club on April 20 hailed the Kinder Morgan decision, saying the Northeast Energy Direct project would have delivering fracked gas from Pennsylvania throughout New England. It noted that in November of last year, Massachusetts Attorney General Maura Healey released a study finding that New England does not need additional fossil fuel infrastructure – like the Northeast Energy Direct Pipeline – to meet its peak energy demand.

The pipeline faced widespread opposition, with the Sierra Club’s more than 100,000 members from the directly impacted states joining thousands of others to intervene and file comments to the Federal Energy Regulatory Commission against the project.

The Director of the Sierra Club’s Beyond Dirty Fuels campaign, Lena Moffitt, said: “Projects like Northeast Energy Direct pipeline in New England or the Jordan Cove Liquefied Natural Gas terminal in Oregon are not needed, and only serve to perpetuate our dependence on fossil fuels. Instead, we must leave dirty fuels in the ground and continue to invest in wind and solar to secure a clean energy future.”

Tennessee Gas Pipeline Co. LLC, a Kinder Morgan company, in November 2015 filed a certificate application with the Federal Energy Regulatory Commission for the Northeast Energy Direct Project (NED).

“The NED Project is a transformative project for the northeast United States,” said Kinder Morgan East Region Natural Gas Pipelines President Kimberly S. Watson in a statement at the time. “Despite being just a few hundred miles from the most abundant and low-cost natural gas production area in the country, consumers in the Northeast pay some of the highest natural gas and electricity rates in the continental United States. These higher prices are due, in large part, to natural gas pipeline infrastructure that is insufficient to meet the winter heating demand of local distribution companies (LDCs) and electric generators.”

The approximately $5 billion NED Project was to expand TGP’s existing, extensive pipeline system in Pennsylvania, New York and New England, connecting low-cost natural gas supplies from northern Pennsylvania to New York and New England markets.

Kinder Morgan reports developments in its gas, coal terminal businesses

Kinder Morgan’s Natural Gas Pipelines business produced first quarter segment earnings before DD&A and certain items of $1.130 billion, as compared to $1.087 billion for the same period last year.

Natural gas continues to be the fuel of choice for America’s evolving energy needs, and industry experts are projecting gas demand increases of over 35% to nearly 110 billion cubic feet per day (Bcf/d) over the next 10 years. Over the last two years, KMI said it has entered into new and pending firm transport capacity commitments totaling 8.2 Bcf/d (1.8 Bcf/d of which is existing, previously unsold capacity). Of the natural gas consumed in the United States, about 38% moves on KMI pipelines. Future opportunities include greater demand for gas-fired power generation across the country, liquefied natural gas (LNG) exports, exports to Mexico and continued industrial development, particularly in the petrochemical industry.

KMI is feeling some impacts from a prolonged slump in the U.S. coal business. Growth from its liquids terminals was partially offset by a reduction of $24 million in first quarter segment earnings before DD&A and certain items from the bulk terminals as compared to the same period in 2015. This reduction was driven by the bankruptcies of coal customers Arch Coal, Alpha Natural Resources and Peabody Energy, which had a negative year-over-year impact of approximately $27 million to earnings before DD&A and certain items for the quarter. The year-over-year impact of the bankruptcies for the full year is roughly the same as the impact for the first quarter, owing to write-offs taken in later periods during 2015. Continued weakness in global coal markets led to a 59% decline in export coal volumes in the first quarter of 2016 versus the same period in 2015.

In other first quarter news for gas pipelines:

  • On March 17, FERC issued an Environmental Assessment for the $156 million, 145,000 dekatherms per day (Dth/d) Susquehanna West project, designed to deliver Marcellus gas supply to an interconnection with National Fuel Gas Supply LLC. Issuance of a FERC certificate is expected in June 2016, with anticipated in-service on Nov. 1, 2017.
  • On March 11, FERC issued an Environmental Assessment for the $447 million TGP Broad Run Expansion project. Subject to regulatory approvals, the Broad Run Expansion project will provide an incremental 200,000 Dth/d of firm transportation capacity along the same capacity path as the Broad Run Flexibility project, which was placed in service on Nov. 1, 2015. In 2014, Antero Resources was awarded a total of 790,000 Dth/d of 15-year firm capacity under the two projects from a receipt point on TGP’s Broad Run Lateral in West Virginia to delivery points in Mississippi and Louisiana. Estimated capital expenditures for the combined projects are approximately $800 million. The anticipated in-service date of the Broad Run Expansion project is June 1, 2018.
  • On March 11, FERC issued TGP a Certificate of Public Convenience and Necessity for its proposed $93 million Connecticut Expansion project. The project will upgrade portions of TGP’s existing system in New York, Massachusetts and Connecticut, providing approximately 72,100 Dth/d of additional firm transportation capacity for three customers.
  • On Feb. 5, FERC issued an Environmental Assessment for the approximately $2 billion Elba Liquefaction project. The deadline for all federal authorizations required for issuance of the FERC certificate is May 5, 2016. The first of 10 liquefaction units is expected to be placed in service in the second quarter of 2018, with the remaining nine units coming online before the end of 2018. This project is supported by a 20-year contract with Shell. The deadline for all federal authorizations required for issuance of FERC certificates for the expansion projects on the Elba Express and SNG pipelines coincides with the May 5 deadline for Elba Liquefaction. These projects, with estimated investment totaling approximately $306 million, are projected to be placed into service beginning in the fourth quarter of 2016.
  • On March 17, FERC granted NGPL’s request for certificate authorization for the approximately $81 million Chicago Market Expansion project. This project will increase NGPL’s capacity by 238,000 Dth/d and provide transportation service on its Gulf Coast mainline system from the Rockies Express Pipeline interconnection in Moultrie County, Illinois, to points north on NGPL’s system. The company has executed binding agreements with four customers for incremental firm transportation service to markets near Chicago. Construction is expected to begin in the second quarter of 2016 and the project is expected to be placed into service in the fourth quarter of 2016.

The Texas Intrastate Natural Gas Pipeline Group continues construction work on its $78 million Crossover project, which will expand its system to provide additional natural gas deliveries into the Nueces County area of South Texas and to other expanding markets along the system. When fully constructed, the project will provide over 1,000,000 Dth/d of new transportation capacity to serve customers in Texas and Mexico, with initial incremental volumes coming online in June 2016.

Kinder Morgan is the largest energy infrastructure company in North America. It owns an interest in or operates approximately 84,000 miles of pipelines and approximately 180 terminals. The company’s pipelines transport natural gas, gasoline, crude oil, CO2 and other products, and its terminals store petroleum products and chemicals, and handle bulk materials like coal and petroleum coke.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.