El Paso Enhances Pipeline Business – Analyst Blog

El Paso Corporation (EP) has entered into a 50/50 joint venture with AGL Resources Inc. (AGL), an Atlanta-based energy service company, for the distribution of liquefied natural gas (LNG) across the southeastern United States. The joint venture, Southeast LNG Distribution Company, will own a fleet of LNG-fueled tankers and distribution facilities and will primarily supply energy to heavy-duty transportation markets.

 

Moreover, El Paso through its wholly owned subsidiary, Tennessee Gas Pipeline Company signed a 15-year supply agreement with Cabot Oil & Gas Corporation (COG), Anadarko Energy Services Company and Seneca Resources Corporation.

 

Tennessee Gas Pipeline through its Northeast Supply Diversification Project – the NSD Project – will be providing incremental firm transportation capacity of approximately 250,000 dekatherms per day, covering from Marcellus Shale region to the existing markets in New England and Niagara.

 

The NSD Project is the combination of Tennessee’s original NSD Project with Marcellus to Leidy and Niagara Project (MLN Project). The original NSD project provided transportation to New England, while the MLN Project provided transportation services to Niagara. The combined project is Tennessee’s third largest project providing transportation from the growing Marcellus supplies and markets in New England to Niagara.

 

Tennessee anticipates spending less than $100 million on the NSD project with construction beginning in the first half of 2012 and completed by November 2012.

 

El Paso is one of the leading companies in natural gas transmission and exploration and production in the U.S. The company’s pipelines business consists of over 42,000 miles of interstate natural gas pipelines that represent approximately 19% of the total interstate pipeline mileage in the U.S.

 

The company’s high-grade exploration and production assets and large inventory of projects offer significant value in the long run. We believe that El Paso’s management competencies and access to financing will enable successful execution of its industry leading pipeline backlog going forward.

 

However, we see the stock performing in line with the broader market due to constrained commodity environment and rate the stock Neutral, supported by Zacks #3 Rank (Hold).