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KMI CEO wants federal help to clear state bottlenecks for pipe projects

It's time for federal authority to override state regulatorswhen it becomes apparent a state is holding up permits to block FERC-authorizedpipeline projects from moving forward, the CEO of the U.S.' largest pipelineoperator says.

"If it becomes apparent that states are acting tofrustrate [development], that's not the place any project developer wants to bein," Kinder MorganInc. CEO Steve Kean said in an interview after his speech to the U.S.Energy Information Administration's 2016 Conference in Washington, D.C., onJuly 12. "It's essential that the federal authority overrides. It'sessential to the functioning of energy markets."

KMI President and CEO Steve Kean

Kean thinks the biggest curveball that can be thrown intotoday's idyllic scene of plentiful natural gas supplies from shale and lowprices is a lack of regulatory consistency driven by ignorance of energymarkets. "We need to inform people in the regulatory community, thinktanks, non-governmental organization, [legislative] committees," he said.

Without directly referencing New York, it's clear thestate's opposition to certain projects has caught Kinder Morgan's attention.Fellow midstream major WilliamsCos. Inc. is part of a team of developers behind the ConstitutionPipeline suing thestate after regulators denied an essential water quality certificate for theproject. Constitution was approved by FERC in December 2014.

"We keep a close eye on regulating andpermitting," Kean said, noting that current hang-ups come from a lack ofknowledge about how things work, a gap that is partly, but not solely,industry's fault, "But if we're not able to get pipes to go from Point Ato Point B," the consequences hurt all parties, Kean said.

A change in public attitudes and knowledge "needs tocome from the policy community," Kean told the audience at the conference."If energy becomes more expensive and less available, that's a reallyregressive tax."

Most low-income workers pay no income tax, Kean illustrated,but everyone pays gas and electric bills. "Cheap energy is what helpspeople out of poverty."

It was a lack of regulatory coordination that led KinderMorgan to cancel itsNortheast Energy Direct Marcellus-to-New England project in April, Kean said inhis earlier talk with researchers, policy makers and energy executives.Connecting the dots seemed like a lock to the self-described "pipelineguy." "The lowest price of [natural] gas is in westernPennsylvania," he said. "The highest price for gas is in theNortheast."

Kean blamed Northeast Energy Direct's demise on theinability of NewEngland state regulators to develop a mechanism for the region's gas-burningelectric utilities to pass along pipeline costs to rate-payers. "We wouldhave gotten a 7% return," Kean said, if the project went through withoutthe mechanism. "We're not spending our investors' money only for a 7%return."

Looking into the future, Kean sees shale gas pouring intotwo markets: LNG and Mexico, disrupting the global gas market's reliance onlong-term contracts linked to crude oil prices in favor of spot cargoes linkedto the Henry Hub or some other benchmark gas price.

"What we hear from our customers is that more peopleare focused on a gas price as a gas price, not a derivative of somethingelse," Kean said. While Kinder Morgan does not trade LNG, it is in theprocess of standing up an LNG export complex at Elba Island, Ga., and Keanadmits, he hears things.

Over the next eight years, Kean predicted, US LNG exportswould become more and more oriented to spot cargoes. U.S. LNG terminals alreadyhave more outbound capacity contracted than there are contracts for deliveryoverseas, he said, and that difference will kick-start a market that plays tothe advantage of U.S. drillers.  

"We're good at this," he said of the U.S. energyindustry. "We have the most flexible upstream, the most flexible grid,more pipelines, more storage, we can absorb more variability." All arekeys to making an industry sector based on unpredictable spot cargoes work,Kean said.

"Mexico is booming," Kean said, noting that 3.6Bcf/d is currently moving south of the border and that Kinder Morgan's pipescarry 2 Bcf/d of that figure. "They are building out a whole newinfrastructure" to take gas to Mexico, but Kinder's interests stop at theborder, he said.

"We haven't been able to get comfortable with theeconomics," of developing and operating pipelines in Mexico, Kean said."We can feed it. We're working north of the border."