Kinder Adds Trans Mountain Capacity

Kinder Morgan Energy Partners L.P. ( KMP - Analyst Report ) unveiled plans for the expansion of its proposed Trans Mountain pipeline in order to cope with growing demand from the producers.

Kinder Morgan –– the largest pipeline operator in the U.S. –– said that it intends to expand the size of its Trans Mountain oil pipeline in Canada by almost 19% to 890,000 barrels a day (BPD) from the previously proposed 750,000 BPD. However, the current capacity of the pipeline, carrying oil from the Edmonton area through the Lower Mainland to a marine terminal at Burnaby, is 300,000 BPD. In 2012, Kinder Morgan first proposed to increase the capacity to 850,000 BPD, and subsequently cut the level to 750,000 in May 2012, as certain supporters left.

It has received commitments from 13 customers that have entered into 15–20 year contracts for 700,000 barrels a day of oil to be delivered through the Alberta-to-Burnaby pipeline.

Of them, Canadian Natural Resources Ltd., Canadian Oil Sands Ltd., Cenovus Energy Inc. ( CVE - Snapshot Report ) , Devon Energy Corporation's ( DVN - Analyst Report ) Canadian unit - Devon Canada Corp., Imperial Oil Ltd., Statoil ASA's ( STO - Analyst Report ) Canadian affiliate - Statoil Canada Ltd, and the marketing units of Suncor Energy inc. ( SU - Analyst Report ) and BP Canada - BP Plc’s ( BP - Analyst Report ) Canadian unit are worth mentioning.

Kinder Morgan aims to file its application to build the project in late 2013. Upon approval, the new Trans Mountain pipeline is expected to be operational in 2017. This latest expansion represents a capital outlay of Canadian $5.4 billion (US $5.5 billion), up by US$1.3 billion from the previous cost of the expansion project of US$4.1 billion.

The Trans Mountain project stands as the second most important one aimed at delivering the Canadian crude oil to Pacific Rim markets. Enbridge Inc.’s ( ENB - Snapshot Report ) C$6 billion ($6.1 billion) Northern Gateway project and TransCanada Corp.’s ( TRP - Snapshot Report ) Keystone XL project have faced delays due to the environmental opposition.

Kinder Morgan’s Trans Mountain pipeline expansion is being opposed by Vancouver and Burnaby municipalities as well as First Nations. They raised concerns over the risks of an oil spill.

We maintain our long-term Neutral recommendation on the Kinder Morgan units, supported by a Zacks Rank #3 (Hold).