Kinder Morgan Inc. purchased El Paso Corp in a $21 billion deal Monday that combines the two largest North American natural gas pipeline operators.
By purchasing their largest rival, Kinder Morgan has taken control of the North American natural gas pipeline industry. If they choose to request higher transport fees from gas and oil producers, the prices could increase for power companies and other gas and oil users.
In an article in The Christian Science Monitor, President and Founder of Caprock Risk Management Chris Jarvis said, “Now that KMP [Kinder Morgan] is by far the biggest pipeline distributor of natural gas, that will also give them pricing power over the market, which could lead to price pressure to the upside for natural gas.”
Before the deal, El Paso owned the largest natural gas pipeline system in North America, with over 43,000 miles of pipe in use. The two companies combined now own roughly 80,000 miles of pipeline across the country.
In an article in USA Today, Kinder Morgan’s founder and CEO Richard Kinder said, “We believe that natural gas is going to play an increasingly integral role in North America.”
“We are delighted to be able to significantly expand our natural gas transportation footprint at a time when it seems likely that domestic natural gas supply and demand will grow at attractive rates for years to come,” Kinder added in The Christian Science Monitor article.
University of Maryland students agree that the move could potentially have a noticeable effect on the prices of both gas and oil.
“I would think that it’s going to cause a price increase,” said junior marketing major Ryan Blake. “Especially in the oil business where it’s dominated by big businesses which are obviously able to increase prices because of the lack of competition.”
“Now that the two largest companies in the industry are coming together, they’re going to be able to effect the market prices in a big way,” said junior accounting major Max Ludwig.
According to Kinder Morgan, once the deal is finalized, they will become the largest independent transporter of gasoline, diesel and multiple other petroleum products.
According to Kinder Morgan, the deal is expected to close in early 2012.