Kinder lapping rivals in Canadian pipeline race

Kinder Morgan Inc., which this year will become the largest U.S. pipeline company after its $20.7-billion purchase of El Paso Corp., aims to extend its lead over competitors in transporting oil across Canada for export to higher-paying markets in Asia.

Kinder is pressing forward with plans to expand its Trans Mountain pipeline, the only conduit connecting Canada’s oilsands region to the Pacific Coast, to take advantage of regulatory setbacks that stalled competing projects at Transcanada Corp. and Enbridge Inc., both of Calgary.

Kinder, whose Houstonbased pipeline partnership, Kinder Morgan Energy Partners LP, has jumped 13 per cent since the end of October, is seeking commitments from Canadian oil drillers so it can double the line’s capacity to 600,000 barrels a day.

“We’re seeing a real sense of outrage” in Canada, chief executive Richard Kinder said at a conference in Houston this month about trans canada and Enbridge’s delays.

The Trans Mountain line is expected to produce $169.4 million in distributable cash flow, or the money it has available for payments to its unitholders, in 2012, up 15 per cent from 2009, Kinder Morgan said in a presentation to analysts last month.

“We believe longer-term growth potential exists through the proposed expansion,” Elvira Scotto, an analyst with rbc capital markets llc in New York, wrote in a Jan. 29 note to clients. Kinder is seeking 15- to 20-year commitments from shippers, which would provide a predictable source of cash flow.

Kinder Morgan Energy Partners shares have climbed 19 per cent in the last 12 months.

Kinder is awaiting regulatory approvals in the U.S. to buy El Paso and plans to close the transaction in the second quarter this year. The partnership’s units rose 20 per cent in the past 12 months, compared to the Cushing 30 pipeline index, which rose 3.0 per cent in the same period.

With the world’s third-largest oil reserves after Saudi Arabia and Venezuela, the Canadian government is eager to better connect foreign buyers to its oilsands region, in the landlocked province of Al- berta, Prime Minister Stephen Harper has said. Oil production is projected to grow to 3.5 million barrels a day in 2015, from 2.9 million in 2011, according to the Canadian Association of Petroleum Producers.

Kinder plans to decide by mid-year whether to seek the Canadian government approvals it will need to enlarge its Trans Mountain line.

Transcanada, meanwhile, is readying a new plan to ship Canadian oil south across the U.S. after its Keystone XL line was rejected by President Barack Obama’s administration over environmental concerns. A third proposal by Enbridge called Northern Gateway that would extend west from the oilsands to Kitimat, B.C., is facing opposition from aboriginal groups and a regulatory decision has been delayed until 2013.

Canada’s oil exports rose 8.7 per cent last year to 2.1 million barrels a day, according to the National Energy Board.

About 99 per cent of those exports went to the U.S. via pipelines, trucks and rail cars. Only about 10,000 barrels of crude a day went to Asia on the Kinder line, according to Wenran Jiang, a researcher at the University of Alberta.

Shipping more oil to Asia is “a fundamental strategic objective of this government,” Natural Resources Minister Joe Oliver said Jan. 27 in Toronto.

The “green furor” over proposals from Enbridge and Transcanada may benefit Kinder Morgan because its proposal follows an existing route, Bradley Olsen, an analyst with Tudor Pickering & Holt Inc. in Houston, wrote in a note to clients.