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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

October 17, 2011 at 10:10 AM

Gas giant: Kinder Morgan keeps its star rising

The big deals that were supposed to materialize this year with so much cash sitting in corporate treasuries have mostly proven to be mirages. Finally, for the fourth quarter, we have Kinder Morgan’s $21.1 billion acquisition of El Paso Corp. It would make Kinder Morgan the largest operator of natural gas pipelines in the nation — with a combined 66,702 miles of lines — and the fourth-largest energy company. Unlike the aftermath of many such an announcement, both companies’ shares are up today on the news.

The business is more complicated than it sounds. For example, pipeline owners charge a fee to transport gas to utilities, and also carry more than just gas. But the sweet spot is the growing demand for natural gas pipelines as energy companies undertake horizontal fracturing to release gas from shale deposits. In addition to the huge network the deal creates, the ability to move the gas found from “fracking” is expected to be highly profitable. Kinder Morgan also operates the only oil sands pipeline serving Washington state via Vancouver, B.C., and a biofuels pipeline in Oregon to terminals on the Columbia River.

Despite the promises of a “100-year supply” of natural gas at current consumption levels, this deal is actually betting on a higher-cost energy future.

The actual production capabilities for natural gas are a source of some debate, even with fracking, which causes assorted environmental problems, including the danger of contamination of water supplies. Many conventional (inexpensive) fields are in decline. And natural gas does nothing to address climate change (yes, it’s still there, real and getting worse).

In addition, the deal needs heavy antitrust review. While the pipeline sector isn’t quite as concentrated as many, that’s small comfort in today’s mega-corporation America. It will certainly produce a company with the political heft to keep the fossil-fuels agenda in charge in D.C. Aside from those unpleasant realities, it’s another coup for founder Richard Kinder, who left Enron before it sent sideways and built the company nearly from scratch.

And Don’t Miss: A U.S. manufacturing renaissance is possible || Foreign Policy

Today’s Econ Haiku:

Trading wheels came off

So Wells Fargo set the stage

For disappointment

Comments | More in Energy

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