Energy Fools who haven't been able to tear themselves away from the "will we, won't we?" Keystone XL drama have missed a fair bit of pipeline news already this week. Though the micro story is limited to the companies involved, the details can point to a bigger picture that can affect all energy investors. Let's look at some of this week's action.
Natural gas exports
Kinder Morgan (NYSE:KMI) petitioned the Federal Energy Regulatory Commission for authorization to increase its shipments of natural gas from Texas to Mexico. The company's Mier-Monterrey pipeline currently ships 425 million cubic feet of gas per day to the Mexican border, where it connects with a Pemex-owned system. Kinder Morgan wants to boost that amount to 700 mmcf per day. The company hopes to have a decision in hand by June 1.
Mexico will be happy to have the gas. Despite the existence of extensive natural gas reserves -- the Eagle Ford Shale doesn't stop at the border, after all -- the country doesn't have the means to produce the commodity for less than it would cost to buy it from the United States. Until Pemex opens its doors to foreign exploration and production investment, the country will have to be content buying gas from across the border.
NGLs on the go
Boardwalk Pipeline Partners (NYSE:BWP) is tag-teaming with Williams (NYSE:WMB) to build a natural gas liquids pipeline system from the Utica and Marcellus shales down to the Gulf Coast. The Bluegrass Pipeline would connect Pennsylvania, West Virginia, and Ohio to the petrochemical and refining hubs in Louisiana and Texas. The system would be part new construction and part conversion of an existing natural gas line, with an initial capacity of 200,000 barrels per day.
The fact that part of the planned route already exists enables the joint venture partners to target a completion date sometime in the second half of 2015. Alan Armstrong, the CEO of Williams, anticipates that liquids production in the two shale plays will overwhelm existing infrastructure by 2016.
1 more MLP?
Western Refining (NYSE:WNR) is the latest company to announce that it may pursue a midstream spinoff of its oil and logistics assets. The company is currently evaluating its prospects, and if management decides to pursue this option, Western would file a registration statement with the SEC sometime this year.
The market is ripe for MLP spinoffs, and they're proving particularly popular with refiners. Marathon Petroleum has succeeded in its spinoff of MPLX, and Phillips 66 isn't far behind. Western has said its extensive retail network won't be included in the potential MLP. Instead, potential assets for spinoff include four refined products terminals, four asphalt terminals, and crude oil and products pipelines.
These deals are important for the companies involved, but the big picture matters, too. This week alone we're reminded that Mexico needs our gas, and if any U.S. E&P ever gets in there it will make a killing; NGL production continues to rise in the Northeast, which bodes well for an American petrochemical renaissance; and finally, if you haven't considered spinning off a midstream MLP, you're missing out.
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