By Kristen Hays
HOUSTON Jan 16 Kinder Morgan Energy Partners
is moving forward on converting a natural gas pipeline
to run crude oil from Texas to California, the latest move by
energy companies to move cheap inland U.S. crude to the
Kinder Morgan Chief Executive Richard Kinder on Thursday
called the potential $2 billon "Freedom Pipeline" to move
growing output from the Permian Basin in West Texas to Southern
California refiners "a marriage made in heaven" if shipper
commitments roll in as expected.
"So far the response has been positive, but until you put a
saddle on, you don't get on the horse," Kinder told analysts
during the company's fourth-quarter 2012 earnings call.
The pipeline could move up to 400,000 barrels per day
depending on customer interest, though Kinder said it would be
profitable at 250,000 bpd.
Kinder first mentioned the conversion possibility last fall
when an analyst asked about the company's underused 10,200-mile
(16,415-km) El Paso Natural Gas (EPNG) pipeline system. That
system transports natural gas from the San Juan, Permian and
Anadarko basins to California, Arizona, Nevada, New Mexico,
Oklahoma, Texas and northern Mexico.
The company has not specified which part of the system could
be converted, but the EPNG system connects with Kinder Morgan's
500-mile Mojave Pipeline near Cadiz, California, about 215 miles
west of Los Angeles.
Experts say such a conversion could take a year or two years
to complete, depending on the size of the pipe and the need for
custom-made components, such as valves, pumps, motors and
"We're out working with both shippers in the Permian and
refiners on the West Coast to ascertain their level of interest
and I think we will know more by the end of this quarter,"
California remains heavily reliant on foreign crude for its
refineries, which have seen margins squeezed by high prices, as
the state's production declines. Gasoline prices there are among
the highest in the United States.
Refiners in other parts of the country have realized higher
profits by tapping cheap surging U.S. production from shale oil,
largely in Texas and North Dakota.
But California is isolated from that attractive supply. No
major pipelines carry crude west, and no major waterways flow
east to west into the state's refining hubs. Even the country's
major freight railroads thin out over the Rocky Mountains and on
the West Coast.
Some refiners in the southern part of California are tapping
that supply via rail.
Alon Energy USA last fall shut down its 84,500 bpd
California refining system for at least a year, until the
company builds and begins using a rail offloading facility by
the fourth quarter 2013 at the earliest.
Tesoro Corp is railing in about 5,000 barrels per
day to its 166,000 bpd San Francisco-area refinery, but would
need to build an offloading facility there as well to
significantly increase those shipments.
Others are looking at doing the same, though refiners say
they expect permitting to build such facilities to take longer
than in other states given California-specific emissions and
Kinder told analysts he did not expect regulatory barriers
to prevent the company from transporting crude to California,
assuming the conversion is approved by the U.S. Federal Energy
"We think all of the barriers are certainly achievable," he