June 3, 2009 / 1:53 AM / 10 years ago

Kinder says gas shales bullish for natgas sector

NEW YORK (Reuters) - Rich Kinder, chairman and CEO of pipeline and storage company Kinder Morgan Energy Partners LP KMP.N said Tuesday huge untapped reserves of shale gas are actually bullish for the natural gas industry, a contrarian view for most in the energy business.

Richard D. Kinder, Chairman and Chief Executive Officer of Kinder Morgan Energy Partners LP addresses the Reuters Energy Summit in Houston June 2, 2009. REUTERS/Richard Carson

“I would look at the overall shale situation as very bullish for the industry, very bullish for a midstream company like Kinder Morgan,” Kinder told the Reuters Energy Summit in Houston.

“Upstream folks will tell you we have ‘100 years of natural gas supply’ that we know we can access in the lower 48 without importing any LNG. When you look at a way to solve the CO2 problem, natural gas has got to be an enormous part of that solution and now we know we have the supply to do that,” Kinder said.

He added, “We are going to have a lot of supply and more need for natural gas transportation in this country,” the place where Kinder Morgan steps in as the second largest gas pipeline system in the nation.

Kinder said there was no question shale gas is having a “severe impact on prices” and he expects that to continue until drilling rates cut back and demand improves as the economy picks up.

“What the upstream sector has done in the natural gas field, strictly with the shale plays is just a dramatic improvement. The common accepted knowledge just a couple of years ago was, ‘we’re depleting our resources in the lower 48, the imports from Canada are not what they used to be and we need all the LNG we can get,’” he said.

Kinder said shale plays and vast improvements in horizontal drilling techniques have led to much more access to natural gas production and a much greater impact on prices.

Kinder also said gas storage has been pushed to near record highs this year but cautioned the summer and hurricane season are still ahead.

“We don’t know what the electric demand is going to be during the summer. We don’t know how hot it’s going to be, whether we’re going to have any hurricane disruptions,” but Kinder said storage will affect the price.

PIPELINE OUTLOOK

Kinder Morgan is also joint developer of the huge Rockies Express natural pipeline with Sempra Energy (SRE.N) unit Sempra Pipelines and Storage, and ConocoPhillips (COP.N).

When complete, the 1,679-mile pipeline will be one of the largest gas pipelines in North America, delivering about 1.8 billion cubic feet per day of gas from Rio Blanco County in Colorado to Monroe County in Ohio.

Adverse weather delayed the eastern advance of the pipeline several times in the past few months, but Kinder said the project is “weeks away” from reaching Lebanon, Ohio and affirmed the projected in service date to Clarington, Ohio, for November 1.

Drilling activities were suspended due to flooding on both the Illinois and Wabash rivers.

In November, Sempra said project costs had ballooned to $6 billion from earlier estimates of $4.4 billion, due to rising labor and permitting costs on the eastern leg of the line.

Kinder said he has been “very frustrated with the costs,” since fixed priced contracts on the western portion of the line came in under budget, but construction on the eastern portion was under time and material contracts and with the weather delays came the added expenses.

Lebanon to Clarington costs are again under fixed-priced contracts, Kinder said.

Reporting by Eileen Moustakis; Editing by David Gregorio

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