31 Jul

Kinder Morgan and Enbridge: Update on Pipeline Projects

WRITTEN BY Rekha Khandelwal, CFA

Like most of the pipeline companies, Kinder Morgan (KMI) continues to fight legal and regulatory battles to build its pipelines. Recently, the company sued the city of Kyle, Texas, for passing an ordinance that hampers its Permian Highway Pipeline project. Previously, Travis Mitchell, the city’s mayor, and other opponents of the Permian Highway Pipeline sued Kinder Morgan to block the project. However, in June, the Travis County District Court dismissed all of the claims against the project.

Kinder Morgan faces challenges

The city of Kyle passed an ordinance that requires a city permit for all of the natural gas pipelines with a diameter of 30 inches or more. Kinder Morgan’s Permian Highway Pipeline will be under the ordinance due to its 42-inch diameter pipeline. According to Kinder Morgan, the ordinance conflicts with the state and federal law. The $2 billion Permian Highway Pipeline will provide an outlet for rising Permian natural gas production. The pipeline will transport gas to markets along the Texas Gulf Coast and Hill Country area.

Pipeline projects continue to face legal, regulatory, and environmental challenges. Kinder Morgan sold its Trans Mountain Pipeline to the Canadian government last year. The company struggled to get regulatory permits to expand the pipeline.

Pipeline or no pipeline?

Increased flaring is another angle to the pipeline controversy. If natural gas doesn’t pass through pipelines for use, it’s flared, which impacts the environment. Recently, Texas Governor Greg Abbott signed a bill into law. The law criminalizes protests against critical infrastructure including oil and gas pipelines. The law should be good news for pipeline companies.

Enbridge’s pipeline projects

Similar to Kinder Morgan, Enbridge (ENB) continues to face troubles related to its pipeline projects. Recently, the Bad River Band of Lake Superior Chippewa filed a lawsuit to remove some sections of Enbridge’s Line 5 pipeline that run through the reservation. The pipeline has operated through the reservation since 1953. According to the tribe, the pipeline easements expired in 2013. The tribe said that since the pipeline is old, it could rupture. Enbridge said that it’s open to re-routing the pipeline if needed.

Enbridge’s Line 3 Replacement project has been delayed by roughly a year due to permit delays. In June, the Minnesota Court of Appeals ruled that the pipeline’s environmental impact statement isn’t adequate, which added to the project’s troubles. Enbridge stock has risen 7% in 2019. So far, the stock has underperformed the S&P 500 Index. In comparison, Kinder Morgan has risen around 36% year-to-date. Kinder Morgan and Enbridge stocks are trading at attractive yields of approximately 4.8% and 6.5%, respectively.

Similar to Kinder Morgan and Enbridge, TC Energy (TRP) faces hurdles for its Keystone XL Pipeline. In March, President Trump issued a new permit to enable the company to start the project’s construction work. So far, TC Energy stock has risen 39% in 2019. The stock offers a yield of around 4.6%.

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