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Gulf Coast Express Pipeline gets investment nod amid Permian push

A final investment decision has been made to move forward with a 1.9 Bcf/d pipeline being jointly developed by Kinder Morgan, DCP Midstream and Targa Resources that would allow more shale gas to move from the Permian Basin to the Texas Gulf Coast after the project secured long-term shipper commitments for about 85% of its capacity, the companies said Thursday.

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The Gulf Coast Express Pipeline, which is targeted to be in service in October 2019 pending regulatory approvals, would add a much-needed conduit for the flow to demand markets of the increasing amounts of associated gas that are being lifted from the Permian amid an avalanche of investment in the oil-rich play that spans West Texas and southeastern New Mexico.

Kinder Morgan, which transports more than one-third of the gas consumed in the US, had been looking for partners to help shoulder the risk of building the $1.7 billion pipeline and enough interest from producers to finance construction and future operations. With the latest announcement, it now has definitive agreements with DCP Midstream and Targa to be joint-venture partners and binding subscriptions with shippers for the bulk of the pipeline's capacity.

Besides DCP Midstream and Targa, other shippers include Pioneer Natural Resources and Apache, which said it also secured an option to purchase up to a 15% stake in the pipeline. If exercised, that would come from Kinder Morgan's share.



Construction is expected to begin in the first quarter of 2018, Kinder Morgan -- which holds a 50% stake in the project and will build and operate the pipeline -- said in a statement.

"The remaining available capacity continues to be marketed to interested shippers and may be offered as part of a binding open season in January," said Duane Kokinda, president of Kinder Morgan's natural gas midstream unit.

DCP Midstream and Targa each hold a 25% stake in the Gulf Coast Express project.

Apache, an oil and gas producer with interests along the Gulf, said its subscription on the pipeline was for 500 MMcf/d. It said the natural gas transport capacity will provide Apache access to domestic industrial and utility users as well as incremental demand for LNG exports and pipeline flows to Mexico, which relies heavily on US gas supplies for power generation.

"Our participation in the GCX project ensures we will be able to deliver gas to the Gulf Coast where we can access growing market demand and Gulf Coast basis pricing," said Brian Freed, Apache's senior vice president of midstream and marketing.

Under terms of the agreement between the joint-venture partners, as disclosed in October when the preliminary deal was reached, DCP Midstream and Targa will commit significant volumes to the Gulf Coast Express Pipeline, including certain volumes provided by Pioneer, a joint owner in Targa's WestTX Permian Basin system.

Gulf Coast Express' mainline will originate at the Waha Hub near Coyanosa, Texas, in the Permian and terminate near Agua Dulce, Texas. The project includes a lateral into the Permian's Midland Basin, consisting of approximately 50 miles of 36-inch pipeline and associated compression to serve gas processing facilities owned by Targa, as well as facilities owned jointly by Targa and Pioneer.

Gas for the pipeline is expected to be sourced from multiple locations, including existing receipt points along the Kinder Morgan Texas Pipeline and El Paso Natural Gas Pipeline systems in the Permian, a proposed interconnection with the Trans-Pecos Pipeline, and additional interconnections to intrastate and interstate pipeline systems in the Waha area, Kinder Morgan has said previously.

DCP Midstream and Targa are major gatherers and processors of gas in the area and Pioneer is a key producer in the region.

--Harry Weber, harry.weber@spglobal.com

--Edited by Jason Lindquist, jason.lindquist@spglobal.com