Kinder Morgan Texas Pipeline LLC (KMTP), a subsidiary of Kinder Morgan, Inc. (NYSE: KMI), EagleClaw Midstream Ventures, LLC (EagleClaw), a portfolio company of Blackstone Energy Partners, and Apache Corporation (NYSE, NASDAQ: APA) announced they have signed a letter of intent for the development of the proposed Permian Highway Pipeline Project (PHP Project), which will provide an outlet for increased natural gas production from the Permian Basin to growing market areas along the Texas Gulf Coast. The approximately $2 billion PHP Project is designed to transport up to 2.0 billion cubic feet per day (Bcf/d) of natural gas through approximately 430 miles of 42-inch pipeline from the Waha, Texas, area to the U.S. Gulf Coast and Mexico markets. Given the level of producer inquiry, KMI is also evaluating the economic and hydraulic feasibility of a 48-inch pipeline with increased transportation capacity. The PHP Project is expected to be in service in late 2020, subject to the execution of definitive agreements and the receipt of construction permits.
Natural gas supply will be sourced into the PHP Project from multiple locations, including KMI’s, EagleClaw’s and Apache’s existing systems in the Permian Basin, with additional interconnections to both intrastate and interstate pipeline systems in the Waha area. The PHP Project will hold capacity on KMI’s intrastate pipeline systems in the market area, which will uniquely enable it to deliver natural gas to the Katy market hub, the Agua Dulce market hub, the Coastal Bend and Kinder Morgan Tejas headers connected to the Freeport LNG export facility, the Cheniere header connected to the Cheniere Corpus Christi LNG export facility, and numerous pipelines along the Texas Gulf Coast.
KMTP and EagleClaw will be the initial partners (50 percent ownership each), and Apache, who has been jointly developing the proposed project, will have an option to acquire up to 33 percent equity in the project from the initial partners. Apache and EagleClaw will be significant shippers on the proposed pipeline, with Apache planning to commit up to 500,000 dekatherms per day. KMTP will build and operate the pipeline.
“The PHP Project is structured to provide unrivaled market optionality for Permian producers,” said Sital Mody, Chief Commercial Officer of Kinder Morgan Natural Gas Midstream. “By contracting for space on KMI’s extensive intrastate systems, the project will offer seamless nominations to the Katy and Agua Dulce market hubs; pipeline headers into LNG export facilities on the Texas Gulf Coast; multiple pipelines delivering gas into Mexico, including Valley Crossing, NET Mexico, and KMI’s Border and Monterrey pipelines; and numerous other intrastate and interstate pipelines. Additionally, shippers on the project will be able to contract for additional transportation, storage and gas sales options with KMI, whose existing intrastate systems are directly connected to most end users along the Texas Gulf Coast.”
“As investors throughout the energy value chain, with extensive holdings of both midstream and upstream assets in the Permian Basin, we have a firsthand understanding of the need for additional takeaway capacity to unlock the full growth potential of the Permian Basin,” said David Foley, CEO of Blackstone Energy Partners. “We look forward to continuing to proactively address the critical infrastructure needed to support producers, and we are excited to establish a partnership on this important project between EagleClaw, the largest privately-held natural gas gathering and processing business in the Delaware Basin, and Kinder Morgan, one of the nation’s most experienced pipeline developers and operators.”
Bob Milam, CEO of EagleClaw, added, “EagleClaw has been in extensive discussions with pipeline operators and customers on the need for further downstream connectivity out of the Waha area for the ever-increasing volumes of associated gas. We have evaluated many different pipeline options over the last 18 months, and we believe that this project has the best and broadest end-market options that will maximize overall net-back value and end-market flexibility for our customers.”
“Apache’s participation in this second greenfield gas pipeline project out of the Permian Basin gives us additional operational flexibility and market optionality, providing unparalleled access not only to growing legacy markets along the Gulf Coast, but also to expanding LNG and export markets. The estimated in-service date of the PHP Project also coincides with growth and scale of our production forecast for Alpine High as well as other Permian production. Kinder Morgan is an industry leader with a proven track record of developing and building capital intensive pipeline infrastructure projects, and we are very pleased to be a part of it,” said Brian Freed, Apache’s senior vice president, Midstream and Marketing.
