Over the weekend Kinder Morgan announced that it would acquire El Paso Corp. This would combine two of the largest pipeline operators in the country. I have read many commentaries about what this would mean to the natural gas industry but nothing has been mentioned about the impact on electricity.
Some points I have learned:
- their pipeline systems do not overlap very much
- their networks are big at 37,000 and 43,000 miles
- they operate terminals and storage facilities
- El Paso is getting out of the exploration and production business
With natural gas being used for electricity generation at many plants around the country the generators would see a consolidation in the common carrier pipeline arena. This could be like the railroad industry where most shippers only have one choice. The gas producers will have fewer choices to collect their gas and then transport it to their contracted buyers.
The last time I checked when a company buys another company the plan is to lower costs and increase profits. How will this happen? Sometimes the acquiring company is able to capitalize on the synergies of the combination by eliminating duplicate activities. Generally though the reduction in competition or alternative suppliers results in a price movement upward. Time will tell if this happens as a result of this acquisition but do not be surprised if it does. This will be buried down the supply chain of the generators.