A new giant may be forming in the energy system. Kinder Morgan made a $22 billion bid for El Paso Corp to form a pipeline conglomerate that will dominate the business of sending fossil fuels from place to place. You might not know it, but this is a very big deal for your ability to drive your car, heat your house, and turn on your lights. Suddenly, Kinder Morgan would be the fourth-largest energy company in America.
It's easy to list off the big oil companies: Exxon, Shell, BP, Chevron. These big integrated companies have "upstream" operations that go find and produce oil as well as "downstream" units that focus on the refining and marketing of oil products like gasoline and diesel. But between these businesses sit a different set of companies who go by the logical name, the "midstream." These are the operations that move and store oil and natural gas around the country, generally by pipeline. They are as absolutely crucial but because they are solidly in the business-to-business category, the average consumer never hears about them.
Now, perhaps, you'll start hearing about Kinder Morgan. If the El Paso deal goes through, Kinder Morgan will be much larger than its next pipeline competitor, Enterprise Products Partners. Kinder Morgan would own 80,000 miles of oil and natural gas pipelines snaking underneath the entire continent. As 24/7 Wall Street put it, Kinder Morgan would become the 'Exxon of pipeline companies." That could be bad news for the other midstream players like NuStar, Magellan Midstream Partners, Enbridge Energy Partners, and others.
The other way to see this deal is as a sign that companies traditionally big in oil are positioning themselves to take advantage the massive amounts of North American natural gas unlocked by fracking and other associated technologies. That's how the Houston Chronicle positioned the deal based on conversations with energy analysts in that city.
"It comes as pipeline companies are repositioning themselves amid a recent surge in U.S. natural gas and crude oil production from shales and other so-called unconventional formations from Texas to North Dakota," the Chronicle wrote, "and it finds another major energy company signaling its belief that the trend is more than hype."
If big oil and the railroads were so interconnected that it was the Texas Railroad Commission regulated oil production in that state, the rise of domestic natural gas may end up similarly connected to the pipeline infrastructure in this country. At least that's where Kinder Moran is placing its $21 billion bet.