After horrific accident, Kenya Pipeline Co. floats tender for design of new pipeline

NAIROBI - The Kenya Pipeline Co. (KPC) is seeking experts to design and build a new pipeline weeks after an oil leak caused a fire in a Nairobi slum that killed more than 100 people.

KPC on Oct. 10 floated an international tender for the new pipeline to replace the dilapidated one to increase capacity and meet growing demand.

In the tender notice, KPC is inviting proposals for preliminary and detailed design and environmental and social assessment services for a section of its fuel pipeline between Mombasa and Nairobi.

Though the actual cost of the project will be known after the design, the energy ministry said it is expected to cost about Sh30 billion.

“The selected consultant shall design and supervise the construction of the new pipeline from Mombasa to Nairobi. The pipeline shall suit projected demand up to year 2044,” the tender advertisement read in part.

The 14-inch pipeline linking Mombasa to Nairobi has outlived its 30-year lifespan and is prone to ruptures.

KPC’s network runs from Mombasa to the town of Nakuru in the west, then branches to Eldoret and Kisumu.

Kenya had hoped to extend the pipeline past Eldoret into Uganda. But this has stalled because Uganda says it wants to build a refinery to process its recently discovered oil.

Kenya has completed construction of a new 325-km. fuel pipeline from Nairobi to Eldoret that will nearly double supplies to the Rift Valley town. The new pipeline is still undergoing tests.

TransCanada says it won’t budge on Keystone XL route

NORFOLK, Neb. - The speaker of the Nebraska Legislature said he will return to the lawbooks to consider the state's options after the developer of the controversial Keystone XL pipeline on Oct. 11 again delivered an emphatic "no" to pleas to reroute the project.

TransCanada Inc. officials said, however, that they would consider additional safety measures for the pipeline, which would carry partially refined crude oil from Canada's oil sands area through the groundwater-rich Sand Hills of Nebraska, on the way to refineries along the Gulf of Mexico.

The comments came after a nearly 4½-hour meeting involving several TransCanada officials and four key state senators in the private law office of State Sen. Mike Flood, speaker of the Legislature.

Nebraska lawmakers are considering holding a special legislative session this fall to force a change in the route. That's a move favored by the state's two U.S. senators, one congressman and Gov. Dave Heineman, as well as a growing number of state senators.

Four of those lawmakers spent more than half of the Oct. 11 meeting urging a route change to alleviate fears that a leak could foul groundwater.

But Alex Pourbaix, TransCanada's president for energy and oil pipelines, said changing the route would require at least a two-year delay for a federal environmental review.

Such a delay, Pourbaix said, would be unacceptable for the Texas oil refineries that would be customers for the 700,000 barrels of diluted tar-sand oil from Canada.

Environmental study of Keystone XL done by firm with ties to TransCanada

NEW YORK - The U.S. State Department assigned an important environmental impact study of the proposed Keystone XL pipeline to a company with financial ties to the pipeline operator, flouting the intent of a federal law meant to ensure an impartial environmental analysis of major projects.

The department allowed TransCanada, the company seeking permission to build the 1,700-mile pipeline from the oil sands of northern Alberta to the Gulf Coast in Texas, to solicit and screen bids for the environmental study.

At TransCanada's recommendation, the department hired Cardno Entrix, an environmental contractor based in Houston, even though it had previously worked on projects with TransCanada and describes the pipeline company as a "major client" in its marketing materials.

While it is common for federal agencies to farm out environmental impact studies, legal experts said they were surprised the State Department was not more circumspect about the potential for real and perceived conflicts of interest on such a large and controversial project.

John D. Echeverria, an expert on environmental law, referred to the process as "outsourcing government responsibility."

The subsequent study, released at the end of August, found that the massive pipeline would have "limited adverse environmental impacts" if operated according to regulations. That positive assessment removed one of the last hurdles for approval of the pipeline.

Cardno Entrix also played a substantial role in organizing the hearings on the project for the State Department, the last of which was held Oct. 7 in Washington.

Senate passes pipeline safety bill after Rand Paul drops opposition

WASHINGTON, D.C. - The U.S. Senate unanimously approved a bill on Oct. 17 updating pipeline-safety regulations and increasing fines that federal regulators can impose on violators.

The bill follows recent natural-gas pipeline explosions, including an incident that killed eight people in northern California last year.

The bill is supported by the industry’s major trade associations - the Interstate Natural Gas Association of America, the American Gas Association and the Association of Oil Pipelines - as well as by the Pipeline Safety Trust, a safety advocacy group.

A similar measure won unanimous approval from the House Energy Committee last month and is awaiting a vote by the full House.

The bill requires that older pipes operating at high pressures be tested in an effort to incorporate the recommendations of investigators who looked into the explosion on Sept. 9, 2010, in San Bruno, Calif.

Under the bill, federal regulators could order that automatic shutoff valves be installed on new pipelines so leaks can be halted sooner. And it directs regulators to determine whether mandatory inspections of aging pipelines in densely populated areas should be expanded to include lines in rural areas. It would be paid for by industry fees.

It also authorizes federal regulators to hire more pipeline inspectors and allows fines of up to $250,000 for "major consequence" violations and a maximum of $2.5 million for a series of major violations.

The legislation cleared the Senate after Sen. Rand Paul (R., Ky.) lifted his objections to the bill, allowing it to go forward with the unanimous consent of the Senate. Paul said in a statement that he had dropped his opposition because the bill’s sponsors had agreed to incorporate an amendment regarding safety testing of older pipelines.

Paul, a tea party ally and anti-tax activist, was elected to the Senate last year in part on the strength of his opposition to new federal regulations.

Kinder Morgan purchasing El Paso for approximately $38 billion

HOUSTON, Texas - Kinder Morgan, Inc. (NYSE: KMI) and El Paso Corp. (NYSE: EP) on Oct. 16 announced a definitive agreement whereby KMI will acquire all of the outstanding shares of EP in a transaction that will create the largest midstream and the fourth largest energy company in North America with an enterprise value of approximately $94 billion and 80,000 miles of pipelines.

The total purchase price, including the assumption of debt outstanding at El Paso Corp. and including the debt outstanding at El Paso Pipeline Partners, L.P. (NYSE: EPB) is approximately $38 billion.

The combined enterprise, including the associated master limited partnerships, Kinder Morgan Energy Partners, L.P. (NYSE: KMP) and EPB, will represent the largest natural gas pipeline network in the United States, the largest independent transporter of petroleum products in the United States, the largest transporter of CO2 in the United States and the largest independent terminal owner/operator in the United States.

"This once in a lifetime transaction is a win-win opportunity for both companies," said Kinder Morgan Chairman and CEO Richard D. Kinder. "The El Paso assets are primarily regulated interstate natural gas pipelines that produce substantial, stable cash flow and have access to key supply regions and major consuming markets. The natural gas pipeline systems of the two companies are very complementary, as they primarily serve different supply sources and markets in the United States. The transaction is expected to produce immediate shareholder value (upon closing) through strong cash flow accretion and offers significant future growth opportunities."

The consideration to be received by the EP shareholders is valued at $26.87 per EP share based on KMI's closing price as of Oct. 14, 2011, representing a 47 percent premium to the 20-day average closing price of EP common shares and a 37 percent premium over the closing price of EP common shares on Oct. 14, 2011.

The offer is comprised of $14.65 in cash, 0.4187 KMI shares (valued at $11.26 per EP share) and 0.640 KMI warrants (valued at $0.96 per EP share) based on KMI's closing price on Oct. 14, 2011. The warrants will have an exercise price of $40 and a five-year term. EP shareholders will be able to elect, for each EP share held, either (i) $25.91 in cash, (ii) 0.9635 shares of KMI common stock, or (iii) $14.65 in cash plus 0.4187 shares of KMI common stock. All elections will be subject to proration and in all cases EP shareholders will receive 0.640 KMI warrants per share of EP common stock.

The receipt of shares and warrants by EP shareholders in the transaction is intended to be tax free for U.S. federal income tax purposes.

Upon closing, KMI shareholders are expected to own approximately 68 percent of the combined company and EP shareholders are expected to own the remaining 32 percent.

"El Paso's board and management have been highly focused on delivering value for our shareholders, and we believe that our agreement with Kinder Morgan will provide even greater value for our shareholders than we expected through the planned spin-off of our exploration and production business," said Doug Foshee, chairman, president and chief executive officer of El Paso Corp.

The transaction has been approved by each company's board of directors.

KMI has a commitment letter from Barclays Capital underwriting the full amount of cash required for the transaction. Prior to closing, the transaction will require approval of both KMI and EP shareholders. The transaction is expected to close in the second quarter of 2012 and is subject to customary regulatory approvals.

"We believe that natural gas is going to play an increasingly integral role in North America," said Kinder. "With the recent development of shale resources, there are now abundant domestic supplies of natural gas, which are being used increasingly to generate electricity and are environmentally friendly. If America is serious about reducing carbon emissions to benefit the environment, and reducing its dependence on foreign oil, natural gas is absolutely the best readily available option. We are delighted to be able to significantly expand our natural gas transportation footprint at a time when it seems likely that domestic natural gas supply and demand will grow at attractive rates for years to come."

The transaction is expected to be immediately accretive to dividends per share at KMI, distributions per unit at KMP, dividends per share at Kinder Morgan Management (NYSE: KMR) and distributions per unit at EPB. Part of these benefits will be driven by cost savings, which are expected to be approximately $350 million per year, or about five percent of the combined system's EBITDA.

Kinder Morgan intends to divest El Paso’s exploration and production assets in order to trim the high debt level that is expected to crop up from the takeover. By the end of 2015, Kinder Morgan expects its assets to exclusively comprise its MLP and El Paso Pipeline Partners L.P. (NYSE: EPB) stakes, as well as the ownership of their respective shares and of Kinder Morgan Management LLC (NYSE: KMR).

The deal will also enhance steady cash flow generation and promise growth for the company’s MLP, Kinder Morgan Energy Partners, which plans to acquire a significant portion of El Paso’s natural gas pipeline assets over the next few years at attractive prices.

For some several years to come, the average annual growth rate in KMP distributions per unit and KMR dividends per share is expected at around seven percent, up five percent annually from the prior estimate on the back of likely dropdowns from this transaction.

El Paso announces MPP project to expand Tennessee Gas PIpeline's 300 line in Pennsylvania

HOUSTON, Texas - El Paso Corp. (NYSE: EP) on Oct. 7 announced that its wholly owned subsidiary, Tennessee Gas Pipeline Co. (TGP), has executed long-term agreements for the MPP project which will expand TGP's 300 Line in Pennsylvania.

The 240,000 dekatherms per day (Dth/d) project includes approximately eight miles of 30-inch pipeline, looping and modifications to four existing compressor stations in Pennsylvania to provide natural gas transportation from the Marcellus Shale supply area to existing delivery points on the TGP system.

All of the capacity is subscribed through agreements with Chesapeake Energy Marketing, Inc., a wholly-owned subsidiary of Chesapeake Energy Corp. for 140,000 Dth/d and Southwestern Energy Services Company, a wholly-owned subsidiary of Southwestern Energy Co., for 100,000 Dth/d.

"We are pleased to announce our fourth expansion project in as many years which brings our total investment in Marcellus infrastructure to $1.3 billion and adds nearly 1.5 Bcf/d of capacity," said Norman Holmes, president of Tennessee Gas Pipeline. "This project leverages TGP's strategic location and provides significant new firm transportation capacity for two prominent Marcellus Shale producers."

Capital for the MPP project is expected to be less than $100 million.

TGP anticipates filing a certificate application for the project with the Federal Energy Regulatory Commission in late 2011. Pending regulatory approvals, construction would begin in 2013, with a Nov. 1, 2013, in-service date.

Koch Industries declared 'substantial interest' in Keystone XL pipeline

A document filed with Canada's Energy Board appears to cast doubt on claims by Koch Industries that it has no interest in the controversial Keystone XL pipeline.

In recent months Koch Industries Inc., the business conglomerate run by billionaire brothers Charles and David Koch, has repeatedly told a U.S. Congressional committee and the news media that the proposed Keystone XL oilsands pipeline has "nothing to do with any of our businesses."

But the company has told Canadian energy regulators a different story.

In 2009, Flint Hills Resources Canada LP, an Alberta-based subsidiary of Koch Industries, applied for - and won - "intervener status" in the National Energy Board hearings that led to Canada's 2010 approval of its 327-mile portion of the pipeline. The controversial project would carry heavy crude 1,700 miles from Alberta to the Texas Gulf Coast.

In the form it submitted to the Energy Board, Flint Hills wrote that it "is among Canada's largest crude oil purchasers, shippers and exporters. Consequently, Flint Hills has a direct and substantial interest in the application" for the pipeline under consideration.

To be approved as an intervener, Flint Hills had to have some degree of "business interest" in Keystone XL, Carole Léger-Kubeczek, a National Energy Board spokeswoman, told InsideClimate News. Interveners are granted the highest level of access in hearings, with the option to ask questions. The Energy Board approved Canada's segment of the pipeline with little opposition, and Flint Hills did not exercise its right to speak.