By Ben Lefebvre Of DOW JONES NEWSWIRES HOUSTON -(Dow Jones)- The boom of natural gas production in the U.S. has touched off a string of pipeline deals. Kinder Morgan Inc. (KMI) and Energy Transfer Equity LP (ETE) have recently made multibillion deals to expand their pipeline networks. They are looking to connect customers with newly discovered shale gas fields, where technology has unlocked vast amounts of previously unobtainable natural gas in rock formations. Kinder Morgan announced Sunday it would buy natural gas pipeline operator and producer El Paso Corp. (EP) for $21.1 billion, plus the assumption of $16.7 billion in debt. Kinder added that El Paso's exploration and production unit would be sold off so the new company can focus on weaving together Kinder's western operations with El Paso's eastern network. On Monday, Energy Transfer sold its propane business to Amerigas Partners LP (APU) for $2.8 billion in cash and stock, plus the assumption $71 million of debt, so it can focus on transporting natural gas business. Energy Transfer earlier this summer beat out rival suitor Williams Cos. (WMB) with a $5.7 billion cash-and-stock offer to buy Southern Union Co. (SUG) and its southeastern natural gas pipeline network. However, Southern Union shareholders have yet to vote on the deal. "You're going to see more consolidation in the gas pipeline business," said Mark Routt, analyst at KBC Advanced Technologies. "The pipelines, intra- and inter- state, are up for grabs." The problem: fewer large-scale pipeline assets are available for sale. With pipeline assets throughout the U.S., Williams was believed to be looking for an acquisition, analysts said, but with a market cap of $16.2 billion, it may be small enough that it might become a target itself. Other large players -- Spectra Energy Corp. (SE), Oneok Inc. (OKE) and Plains All American Partners LP (PAA) -- have the wherewithal to make a purchase, with Oneok in particular wanting to make a "transformational" acquisition, said Kevin Gallagher, portfolio manager at Swank Capital LLC. "The matter is finding a target at the right price," Gallagher said. Meanwhile, MarkWest Energy Partners LP (MWE), a natural-gas pipeline company able to move 2.5 billion cubic feet a day of natural gas in the southwest, northeast and Gulf Coast areas, was mentioned by analysts as a potentially attractive buy. MarkWest is particularly appealing to companies looking to increase their footprint in the increasingly prominent Marcellus shale-gas area centered in Pennsylvania and Ohio. Pipeline businesses looking for the quick road to growth may have to start persuading natural-gas producers such as Chesapeake Energy Corp. (CHK), which owns some pipelines, to sell those assets, analysts said. Likewise, municipal gas utility companies such as Dominion Resources Inc. (D) also have pipelines that could garner bids. The Kinder Morgan-El Paso deal "could but more pressure on other integrated gas names to separate" from their pipeline operations said Kevin Smith, analyst at investment bank Raymond James. A consolidation of the pipeline industry should have little effect on the prices shippers and end users pay, as the federal government regulates how much it can charge for transporting the commodity. However, with the spate of deals potentially causing other pipeline business to think about their own growth strategies, the industry could succumb to M&A fever, said Avi Feinberg, analyst at Morningstar. With the amount being paid for pipelines increasing, companies will have to chose their targets wisely, Feinberg added. "The key is to stay disciplined despite what competitors are doing," Feinberg said. -By Ben Lefebvre, Dow Jones Newswires; 713-547-9201; ben.lefebvre@dowjones.com
