Permian Highway Adjusts In-Service Dates and Roils the Market
On Kinder Morgan’s earnings call on October 16th, CEO Steve Kean announced in his prepared remarks that the in-service date for its Permian Highway project would be delayed from the fourth quarter of 2020 to “early” 2021. Although the delay could be as little as one day given the vagueness of the terms, in actuality, Kinder Morgan had been promising an October 2020 in-service date, and we assume early 2021 could mean almost anytime in the first quarter. So, it appears they may have shifted the in-service date by approximately five months.
According to Mr. Kean, the project is progressing well, and they have obtained about 85% of the rights-of-way required and expect the timely acquisition of the remaining necessary easements. However, he indicated that progress on “obtaining” some of the required regulatory clearances has gone a little more slowly than planned. Therefore, to assure that construction can be done in an efficient manner, they have decided to start construction a “little bit” later than planned.
Readers of Insights and our Permian Edge report were aware as early as May that the project was facing stiff opposition from local governments and grassroots organizations. The announced delay, while not a certainty, appeared to be a risk even then as Kinder Morgan and the Town of Kyle were locked in countersuits about the project. Today, we look at how the use of our Insights and Permian Edge report would have alerted readers to the risk and how we intend to help anticipate other risks going forward.
The Project Was Not Typical as Far Back as May
Readers of our Permian Edge (the November edition is being issued today), would not be surprised by the CEO’s progress report on easement acquisition; our chart in last month’s report, reproduced below, showed that they were progressing well on that front.
Although Kinder Morgan did not blame easement acquisition for the delay, it seems possible that questions about the final route may have led to the delay in “obtaining” the required approvals. Reading between the lines, it seems likely that the delay may have been in “submitting” the applications because there was uncertainty about the final route. Given the limited approvals needed to construct in Texas, the applications most likely to be delayed by not knowing the pipeline’s exact path would be those involving endangered species, which require fairly precise routing information.
Back in May, we alerted our Insights readers in Colorado Passes Anti-Fossil Fuel Legislation; Which Way Will Texas Break? that there was substantial local opposition to Permian Highway in Hays County and noted how it may be exacerbated by Kinder Morgan’s aggressive use of eminent domain, as exemplified by their Gulf Coast Express project. It is probably not an accident that the resolution of some of that litigation preceded the announced revision of the in-service date because that settlement reduced the uncertainty of the route through the county.
So today, we dive back into the data on easement acquisition and identify an early indicator we will use for future projects in Texas that may show when a project is encountering greater than normal landowner opposition.
Kinder Morgan Gets the Easement It Needs
As the following graphic indicates, compared to the rest of the industry, Kinder Morgan uses its eminent domain authority far more than others.
On the chart above, we show how the industry used its eminent domain authority in twelve other Texas projects as compared to Kinder Morgan’s use in its two recent projects, Gulf Coast Express and Permian Highway. As shown, the industry as a whole uses its eminent domain authority far less than does Kinder Morgan.
Even comparing the two Kinder Morgan projects is revealing. It waited until the sixth and seventh months of its acquisition process for Gulf Coast Express before turning to heavy use of eminent domain. However, for Permian Highway, it started using that authority heavily in the third and fourth months. As we look at future projects, we will let our Permian Edge readers know if a project is using eminent domain in a way that is substantially different from the industry norm -- as that may be an early indicator of grassroots opposition that could slow the schedule down, as it apparently did for Permian Highway.
Litigation Risks
Once Kinder Morgan has obtained most of the remaining 15% of easements they hope to acquire, it intends to commence construction at a point that will maximize efficiency. That may indicate the project is anticipating time-of-year restrictions on some aspects of the construction process. Opposition groups, including local governments, have filed notices that they intend to enforce various federal requirements, especially under the Endangered Species Act, if the federal government does not sufficiently enforce those statutes against the project. Time-of-year restrictions often arise in plans to address impacts on endangered species, and we will be watching this potential litigation between now and when construction starts to learn if these types of restrictions will impact the project.
Hydrostatic Test Records
Once construction begins, the next key data point we will be following is the hydrostatic test records. These records give us a timely insight into the progress of the pipeline construction. We not only can compare the project to data for the industry but also to the data for Kinder Morgan’s Gulf Coast Express. Based on that data, if the project is to go into service by March 31, 2021, we would expect applications for hydrostatic tests to start being filed in or around September 2020. We will, of course, provide an update on those filings in our monthly Permian Edge report. If hydrostatic testing starts sooner, it could be a good sign that project completion could be “earlier” in 2021 than the March 31 date we are currently anticipating.
Insights Coming Soon
- PHMSA Storage Report
- Chesapeake Bankruptcy Risk
Recent Insights