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Kinder Morgan deal lays groundwork for more pipelines

Kinder Morgan

Kinder Morgan is folding three of its separately-traded subsidiaries into the parent company.  

Kinder Morgan oversees a vast network of oil and gas pipelines in North America. It's actually a family of companies and now they're consolidating. The "why" is complicated but the upshot isn't: the new corporation wants to spend more money acquiring even more pipelines. Because, it turns out, there's a shortage. 

Kinder Morgan already operates or owns a piece of some 80,000 miles of pipelines in North America. Barbara Shook says its founder clearly wants more.

“Mr. Kinder kept talking about acquisitions and acquisitions and acquisitions during the conference call with analysts this morning,” says Shook, senior reporter-at-large with the Energy Intelligence Group. Disclosure: Shook owns shares in one of the Kinder Morgan companies.

She says the corporate restructuring will make it cheaper for Kinder Morgan to borrow money. That’s money Kinder Morgan can use to buy a precious commodity: other pipeline companies.

“We were caught short in terms of our transportation infrastructure for energy,” says Bob McNally, president of the Rapidan Group. He says the U.S. oil and gas boom changed everything – both the scale of the boom and where it’s happening.

“The parts of the country where we’re increasing production of oil and gas are not areas where we produced oil and gas before,” he says.

Think of all that natural gas in Pennsylvania, West Virginia and Ohio. Think of the Bakken Shale in North Dakota and Montana.

Paul Sullivan, an energy security expert at Georgetown University and the National Defense University, says there aren’t enough pipelines to move it all.

“I think the proof that there is need for more is the amount of oil that is moving by rail,” he says, adding that so much oil is moving by rail that corn and other agricultural goods are getting squeezed out. Plus, derailments have a devastating effect.

“Moving oil by rail is more expensive and it’s also less safe,” Sullivan says.

Which is why companies like Kinder Morgan want to lay the groundwork for more pipelines.

About the author

Kate Davidson is a regular contributor to Marketplace.

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