After mixed results for the first quarter of 2012, Kinder Morgan Partners (NYSE:KMP) is facing stiff opposition from Vancouver city council for its planned pipeline expansion in Canada. This is an important project for KMP and would be a major milestone for Kinder Morgan Canada.

Separately, KMP recently received approval from the FTC for the long withheld El Paso deal, but that came with a condition that requires KMP to sell three of its U.S. natural gas pipelines. Kinder Morgan is a midstream company in the energy sector in North America offering pipelines for refined petroleum products and natural gas, terminals, and provides CO2 for oil recovery. It competes with players like Enterprise Products Partners (NYSE:EPD) and Enbridge Inc. (NYSE:ENB).

See our complete analysis for Kinder Morgan Partners here

Pending Transmountain Expansion

Transmountain pipeline expansion is a marquee project for KMP and its recent announcement to triple capacity of the pipeline is critical for the future growth of Kinder Morgan Canada. KMP is now troubled by active opposition toward the project by the Vancouver city council on concerns of environmental risk.

Mayor Gregor Robertson, who started the motion, said: “Vancouver’s economy does depend on tens of thousands of jobs that rely on a clean environment and an international brand that attacks many visitors and immigrants.” ^[1].

He wants the energy companies to be held responsible for any environmental impact occurring from oil spillage. We expect major upside for KMP if the project can move forward despite this resistance.

Good News: Approval for El Paso Deal

The Federal Trade Commission (FTC) has approved the El Paso sale to Kinder Morgan, but to meet some of the antitrust concerns, KMP is required to sell three natural gas pipelines. ^[2] This acquisition will make KMP the largest midstream energy company in the U.S. and help it realize considerable cost savings. However, critics still doubt the effectiveness of the deal for KMP, but we believe it would be accretive for KMP if it is able to realize cost synergies. Let’s look at how margin improvements can impact KMP price estimate.

Changes to Trefis Estimates

We recently revisited some of our forecasts for KMP and raised our price estimate to $87, which is nearly 5% above the current market price. We reduced the forecast for average realizations from natural gas and products pipelines due to the stringent tariff structure by the Federal Energy Regulatory Commission. On the other hand, we raised our forecast for Kinder Morgan Canada and CO2 & oil revenues due to enormous expansion plans in Canada and higher demand for CO2 lately.

Our new price estimate also includes increased terminal revenues because of higher demand for storage in the future. As far as margins are concerned, we revised it for Canada division, terminals and CO2 division up from previous estimates on better realization expectations. We also raised Capex (as % of EBITDA) based on management guidance in Q1 results.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Vancouver formally opposes Kinder Morgan pipeline expansion, news1130, May 2, 2012 [↩]
2. Kinder Morgan wins U.S. approval to buy El Paso, Reuters, May1, 2012 [↩]