Kinder Morgan Cancels $3.3-Billion Massachusetts Gas Pipeline

Kinder Morgan is pulling the plug on its biggest planned investment, the $3.3-billion, 188-mile Northeast Natural Direct natural gas pipeline through parts of Massachusetts and southern New Hampshire.

The Boston Globe calls the announcement, a “huge victory for its array of opponents,” while at least one analyst interprets it as a sign of weakness.

“Kinder Morgan’s initial decision to proceed with the project, through its Tennessee Gas Pipeline subsidiary, was based on existing contracts it had with some gas utilities, as well as the expectation that others would sign on to buy gas from the line,” the Globe explains. “Executives at the Texas company were also counting on an unprecedented shift pursued by state regulators in New England that would allow electric customers to be charged for pipeline construction costs.”

The rationale was that higher electricity costs would be more than offset by cheaper gas from the Marcellus shale in Pennsylvania, the source of about half of New England’s electricity.

But Kinder Morgan ultimately concluded that “there are currently neither sufficient volumes, nor a reasonable expectation of securing them, to proceed with the project as it is currently configured,” the company said in a release. And it’s still “far from certain” that New England regulators will approve the charge on electricity consumers, the Globe notes.

“We said all along that we didn’t think there was a need for a big new pipeline across the state,” said staff attorney David Ismay at the Conservation Law Foundation. “We feel somewhat vindicated that the board of Kinder Morgan is now seeing what we argued.”

“Kinder Morgan is stopping the pipeline because it is both expensive to ratepayers and simply not needed,” agreed Environmental League of Massachusetts President George Bachrach. “Massachusetts has the capacity to develop its own energy in solar, wind, and hydro. In the process, we can create new industries and jobs here, rather than exporting our dollars and jobs to fossil fuel states.”

While the Globe report focused on the regional context of Kinder Morgan’s announcement, Bloomberg took a closer look at the financial maneuvering of a company coping with the deepest decline in first-quarter profits in four years. In addition to the pipeline cancellation, the company cut its capital budget for the second time in four months, and announced that it would require some customers to post collateral to make sure they pay their bills.

“With a debt load that more than doubled in the past five years to more than US$41 billion, Kinder has been hit as stagnant or falling demand prompted drillers, coal miners, and oil refiners to cancel orders for new capacity the company was counting on to support growth,” Bloomberg reports. “Stung by bankruptcies among U.S. coal miners and credit downgrades for shale gas drillers, Kinder is requiring some customers to post ‘a lot’ of collateral, Chief Executive Officer Steve Kean said during a conference call on Wednesday.”

At least one analyst was unimpressed by Kinder’s decision to pull out of the Northeast Energy Direct project, given the wide spread between low gas prices from the Marcellus and high electricity costs in the northeastern U.S. “That New England project going offline is concerning,” said Charlie Smith, chief investment officer at Fort Pitt Capital Group. “Unless I’m missing something, this should’ve worked.”

Bloomberg notes that Kinder Morgan has reduced the value of the projects it plans to bring online in the next five years to US$14.1 billion, compared to $21.3 billion last September. The company backed away from its $1-billion Palmetto pipeline earlier this month, reported a $1.15-billion loss in the last quarter of 2015, and had to cut its investor dividend by 74% in late January to save its stock from “junk” status.