Kinder Morgan Announces Plans To Buy El Paso

A huge deal in the energy business is just the latest signal that natural gas is a hot commodity. One of the largest natural gas pipeline operators, Kinder Morgan, is buying its rival El Paso for $21 billion.

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MELISSA BLOCK, HOST:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

ROBERT SIEGEL, HOST:

I'm Robert Siegel.

And we begin this hour with a huge business deal that affects how many of you heat your homes and cook your meals. It's a story about the business of energy that ends with a moral. The Kinder Morgan Company, which operates natural gas pipelines all over North America is expanding its reach.

BLOCK: They're paying $20 billion to buy another pipeline powerhouse, El Paso Corporation. Kinder Morgan was started by a former Enron executive. And as NPR's Wade Goodwyn tells us, therein lies the moral.

WADE GOODWYN, BYLINE: The deal would more than double the size of Kinder Morgan's existing pipeline network to 80,000 miles. The company's pipelines in Texas, the Midwest, and the Rocky Mountains will be joined to El Paso's vast network, which stretches from the Gulf Coast, east to New England and west to California. Shale discoveries are at the root of this activity.

The deal is a vote of confidence in the economic viability of the mushrooming exploration of natural gas in this country. It's also a vote of confidence in El Paso because back in the 1990s, in an effort to keep up with that energy behemoth down the street called Enron, El Paso decided it, too, needed to become a trading company. And then it, too, got into trouble.

Ken Medlock is a professor at Rice University who studies the natural gas industry.

KEN MEDLOCK: If you look at El Paso just 10 years ago, it looked like, given its asset base, it would be a nice sort of takeover target for a number of different companies. But when you look at them - the liabilities that the company had because of their trading activities, it just didn't make any sense.

GOODWYN: After the smartest guys in the room blew up Enron in a cloud of lawsuits and criminal prosecutions, El Paso decided that following in Enron's footsteps might not be the best strategy. It took years to undo the damage, but the proposed deal proves El Paso has done it.

A small irony is that the buyer Richard Kinder, CEO of Kinder Morgan, used to be one of Enron's smartest guys. But when Enron anointed Jeffrey Skilling as Ken Lay's successor and not Richard Kinder, he left and began his own company. Medlock says that while Enron executives indulged in flights of fancy, believing every far-flung business they touched would turn to gold, Kinder focused on building his core.

MEDLOCK: And that's the thing about Kinder Morgan. By not traveling that path, it really left the company in a situation where they could have a very solid balance sheet coming out the back side of the merchant energy meltdown and put it in a position to grow. And it's been growing. And this is growth by leaps and bounds, obviously.

GOODWYN: The Rice professor says there's a moral to the story. If you're in the natural gas transportation business, don't forget about the pipeline.

MEDLOCK: You can't go asset-light in a business that is dominated by returns on investment.

GOODWYN: Words to live by. That day, back in 1996, when Richard Kinder was told he wasn't going to be the guy at Enron had to be one of his most disappointing. Fifteen years later, he's being hailed as a pipeline company superstar and the guy who got the nod is serving a 24-year federal sentence.

Wade Goodwyn, NPR News, Dallas.

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