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El Paso Natural Gas (EPNG) − a business unit of Kinder Morgan Energy Partners, L.P. and Kinder Morgan, Inc. − has inked a long-term deal to build a new pipeline to Mexico.

The 25-year agreement calls for El Paso to initially provide 200 million cubic feet per day of natural gas transportation capacity via a new pipeline. This new 60-mile pipeline is expected to stretch existing pipelines near Tucson, Arizona and join with a pipeline to be built in Mexico.

The financial terms of the agreement were not disclosed and the construction is yet to receive federal regulatory approvals. El Paso plans to file applications for the required permits early 2013. Upon approval, construction work is expected to commence in the first quarter of 2014, and will likely be operational in September 2014.

The latest agreement will support the ongoing development of the around $200 million Sasabe Lateral pipeline. It is expected to create employment in Arizona, along with a market for shipping profuse, low-priced U.S. gas production to Mexico. Additionally, the project will enable Mexico in meeting its environmental objectives.

Kinder Morgan is one of the largest publicly-traded master limited partnerships (MLP) and generally serves as a benchmark for the pipeline MLP group. A focus on fee-based and diversified businesses has enabled the partnership to dilute its business risks.

Kinder Morgan acquired stakes of Tennessee Gas Pipeline (TGP) as well as EPNG from its parent company Kinder Morgan Inc. . This was a part of Kinder Morgan Inc.’s acquisition of El Paso Corp. that entailed the divestiture of three U.S. natural gas pipelines.

Various agreements/modifications have been lined up for these assets in the coming years. These are expected to augment the partnership's revenues. Kinder Morgan foresees growth opportunities on TGP and EPNG systems beyond the existing projects in the Marcellus and near the Mexico border. The partnership is also evaluating a potential gas-to-crude pipe conversion on a portion of EPNG to transport West Texas crude to refineries in California.

Kinder Morgan currently retains a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain a Neutral recommendation on the stock.

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