Kinder Morgan (KMI) said on Sunday it is consolidating its master limited partner interests with the $71 billion acquisition of Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR) and El Paso Pipeline Partners (EPB). The deal could pave the way for founder Richard Kinder to expand his focus on the U.S. energy industry from pipeline infrastructure and into actual reserves of oil, coal and natural gas, one source familiar with the deal told TheStreet. Furthermore, Kinder may also be able to increase the company’s presence in energy infrastructure, possibly within crude oil and refined products logistics and tankers.
The announcement highlights the incredible amount of resources and capital expenditures that energy companies are willing to pour into their expansion and to lay the groundwork for the U.S.'s future potential as an oil major and net exporter. The Kinder Morgan deal reflects the bullish outlook on domestic and international demand for U.S. energy.
"The big thing about all the oil companies is not only do they make oil here in the U.S., but eventually they're going to have to transport it out," said Carl Larry, president of Oil Outlooks and Opinions.
Oil Outlooks and Opinions data indicate U.S. refineries have had to run a record volume of oil this summer, averaging about 16 million barrels a day for the last eight weeks. Of that, 8.5 million barrels came from domestically produced oil vs. a 12-year low of 7 million barrels in imports. The U.S. appears to be on target for domestic production of 9 million barrels each day by the new year.
As the U.S. economy improves and international markets increasingly look to the U.S. for a stable source of oil supply, Larry forecasts a steady pick-up in WTI oil prices, from the current, roughly $100 a barrel mark. In the short term, he sees little possibility of a correction, estimating instead a push to about $106 heading toward $108 to $110 by next year, driven by U.S. economic demand alone. The price increases won't be sharp due to fewer bank trades and lessening U.S. oil market exposure to geopolitics, he says.
"The volatility's shrinking, but those movements are becoming much more important in the grand scheme," said Larry.
The NYSE Energy Sector Index was rising 1.61% in Monday afternoon trading. It's increased over 10% over the past year.
-By Andrea Tse in New York