KMP Could Build First Major Canadian Pipeline to Serve Asian Markets


Kinder Morgan Partners ( KMP ) has set forward plans to gauge the possible expansion of its Edmonton to Vancouver pipeline and the related port facilities for overseas oil exports. (( Kinder Morgan eyes expanded Trans Mountain line , Reuters)) Ian Anderson, president of Kinder Morgan's Canadian unit , spoke about his plans to increase the capacity of the existing pipeline by a "few hundred thousand barrels". The pipeline currently transports 300,000 barrel per day. KMP is a subsidiary of Kinder Morgan Inc., that owns and operates pipelines and storage terminals throughout the U.S. The company faces direct competition from other pipeline and energy companies like Enterprise Products Partners ( EPD ), Williams Companies, Inc. ( WMB ) and from pipeline subsidiaries of energy giants like Exxon Mobil Corporation ( XOM ).

We have a $79.50 price estimate for Kinder Morgan's stock, representing a 10% premium to the market price.

Ian Anderson mentioned that the decision to expand will be finalized at the end of the fall open season when the shippers sign a binding contract for their capacity. The new contracts will define the required pipeline expansion to sustain shipments till 2015. The company is currently weighing the commercial aspects of the expansion, which will essentially provide the first significant network for the Canadian oil exports to Asia and other continents. This will allow the producers to ship to the high-paying Asian region instead of  the U.S. Midwest, where excess crude at the Oklahoma storage hub has decreased prices. The diversion of oil from the  Midwest will narrow the gap between the West Texas Intermediate Oil ( WTI ) and the Brent Crude. WTI was nearly $20 below the Brent crude index recently.

Currently, close to 25% of the product delivered through the Trans Mountain pipeline system is shipped via the company's Westridge Dock facility at the Port of Vancouver. The company is looking to raise the capacity to eventually handle 450,000 barrels per day. It also wishes to a second berth that would accommodate the Suezmax tankers with a capacity of 650,000 barrels.

As per our estimates, the planned expansion of the trans mountain pipeline will provide a significant upside to the current revenue generated from Kinder Morgan Canada. We estimate that revenues from this division will touch the $350-million mark by the year 2013.


See our complete analysis of Kinder Morgan Partners' stock here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: EPD , KMP , WMB , WTI , XOM



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