Kinder Morgan Energy Partners LP (KMP) intends to double the planned capacity expansion of its Trans Mountain pipeline in response to growing customer demand for tapping new markets in the overseas.
The $5 billion worth project will boost the capacity of the Trans Mountain line by about 550,000 barrels a day (BPD) from 300,000 BPD currently. The 1,150-kilometer (714-mile) pipeline ships crude oil from Alberta to Vancouver, to reach the West Coast. Alberta oil sands are expected to reach production level of 3 million barrels a day by 2020 and stands as the third largest crude oil reserve worldwide. Hence, the latest expansion will permit Asian purchasers huge volumes of Canadian crude in Vancouver for shipment and then transportation across the Pacific. The project also foresees expansion of the Trans’ terminal in Vancouver, enabling more tankers to preserve oil.
Importantly, this pipeline expansion is among the numerous pipeline projects currently in process as Canadian oil producers seek to hit the Asian markets and U.S. West Coast refineries that offer good returns. Last year, only 1.65% of Canadian crude exports were able to transport to markets outside the U.S. The producers also aim to close the regional oil price discrepancy. The start-up of the proposed project construction is expected in 2016 and be over by one year.
Kinder Morgan’s Trans Mountain will compete with Enbridge Inc.‘s (ENB) proposed 525,000 BPD Northern Gateway pipeline that is expected to ship crudes of the oil sands to a deepwater port at Kitmat, located on British Columbia’s northern coast. However, Northern Gateway has been facing hindrances from environmentalists and aboriginal groups, delaying the project by more than a year.
Kinder Morgan Energy Partners is the largest independent owner and operator of petroleum- product pipelines in the U.S. The partnership is one of the largest publicly traded master limited partnerships (MLPs) and generally serves as a benchmark for the pipeline MLP group. Recently, the partnership intends to boost the merchant storage capacity at its subsidiary Trans Mountain Pipeline’s Edmonton terminal by an additional 1.2 million barrels. In this regard, Kinder Morgan Canada Terminals signed a long-term agreement with a major Canadian producer for the construction of the expanded facility.
The partnership, whose general partner interest is owned by Kinder Morgan Inc. (KMI), holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain our Neutral recommendation on the stock.
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