Kinder Morgan exec expresses uncertainty over future of Permian Pass natural gas pipeline proposal

Houston — Kinder Morgan cannot be sure its proposal to build a third natural gas pipeline serving the Permian Basin will move forward amid challenges securing commercial support and volatile energy markets, a company executive said Wednesday.

During an investor presentation, Chief Strategy Officer Dax Sanders said that while conversations with potential shippers continue for Permian Pass, no contracts have been signed to date. He said the project will not be sanctioned without solid take-or-pay contracts that carry terms of at least 10 years.

"That could be something that potentially gets FID'd this year, assuming the market comes together," Sanders said at a Credit Suisse energy summit in Vail, Colorado, that was webcast. He quickly added, "If it comes together, it does. If it doesn't, it doesn't."

The comments reflect the uncertainty that has been caused by global downward pressure on gas markets, with supply, demand and the deepening crisis over the coronavirus outbreak all raising concerns. In January, Kinder Morgan announced that it would be employing a cautious growth strategy. Market signals have been further strained since then.

"We believe US demand is certainly going to continue, but the exports story ... I know there has been some issues there lately," Sanders said. "Spot pricing for LNG has gotten some attention. Some cargoes not getting lifted has gotten some attention."

The Permian, which spans West Texas and southeastern New Mexico, has seen a surge in drilling activity in recent years, mostly by oil producers that are also lifting significant amounts of associated gas. Pipeline operators have been adding new infrastructure to move that gas to the Gulf Coast, where it is used locally, shipped via pipeline to Mexico or liquefied and exported as LNG via tanker.

Kinder Morgan, which already moves more than a third of the gas consumed in the US, has been eager to further tap into those dynamics. Its Gulf Coast Express pipeline serving the Permian entered full commercial service in September 2019. Its Permian Highway Pipeline is under construction and currently targeted to start up in early 2021. Permian Pass, if it happens, would be its third gas pipeline serving the prolific basin.

If the coronavirus outbreak worsens, that could become a wildcard, as Kinder Morgan seeks commercial support for Permian Pass. An S&P Global Ratings report issued this week said the coronavirus is expected to be a material headwind to US growth in the near term.

"I'm sure customers are looking at it," Sanders said. "That certainly could affect conversations."