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November 29, 2011

Proposed KMI and El Paso merger would create largest U.S. natural gas pipeline company

map of U.S. natural gas pipeline network, November 2011, as described in the article text
Source: U.S. Energy Information Administration, based on Gastran.

The proposed merger of Kinder Morgan Inc. (KMI) and El Paso Corp. (El Paso) announced on October 16, 2011 would create the nation's largest natural gas pipeline company. If approved by state and federal regulatory officials, the combined company would operate about 67,000 miles of natural gas pipelines (see the blue and red lines in the map), or about 22% the U.S. natural gas pipeline network. Upon closing, the proposed $38 billion transaction would be one of the biggest natural gas pipeline mergers in United States history.

El Paso's natural gas pipeline network complements Kinder Morgan's natural gas system. By adding El Paso's network to its own, KMI increases its access to natural gas markets in the Southwest, Southeast, Northwest, and Northeast. El Paso has been extending its reach into these markets. In 2011, El Paso completed three major pipeline projects: Ruby Pipeline, Florida Gas Transmission Phase VIII, and Tennessee Gas Pipeline 300 Line, in total adding around 1,200 miles and 2.6 billion cubic feet per day of capacity to its network.

graph of natural gas pipeline mergers and acquisitions activity as of November 2011, as described in the article text
Source: U.S. Energy Information Administration, based on SNL Financial.
Note: The labeled brown bars represent the four largest deals since 1996. Total transaction value only includes completed and pending deals based on the announcement year.
*Pending transaction

As measured by total dollars, 2011 has been a significant year so far for mergers and acquisitions in the natural gas transmission sector compared with previous years. The proposed merger between Kinder Morgan and El Paso could be the largest U.S. pipeline-related merger and acquisition since 1996, representing about 54% of the total transaction value of proposed or concluded mergers so far in 2011, according to SNL Financial.

On June 15, 2011, Energy Transfer Equity agreed to acquire Southern Union for $9.2 billion, making it the second largest pending natural gas pipeline-related deal in 2011. Since 1996, three natural gas transmission mergers and acquisitions deals over $20 billion were concluded according to data from SNL Financial: a $22 billion deal between El Paso and Coastal Corp in 2000; a $21 billion leveraged buyout deal of Kinder Morgan by a group of private investors in 2006; and a $20 billion deal between Enterprise Products Partners and Enterprise GP Holdings in 2010.