Kinder Morgan To Buy El Paso Corp. For $20.7 Billion To Become America's Largest NatGas Pipeline Operator (KMI, EP)

NEW YORK (AP) — Kinder Morgan plans to buy El Paso Corp. in a $20.7 billion deal that's expected to create America's largest natural gas pipeline operator.

Kinder Morgan Inc. is expanding its reach as the U.S. becomes increasingly reliant on natural gas. Drillers are pumping ever-increasing amounts from underground shale deposits across the U.S. Natural gas prices have dropped to less than half their level of three years ago, and power companies are using more of the fuel because it emits fewer greenhouse gases than coal.

The deal also adds to founder and CEO Richard Kinder's energy empire. Kinder, 66, started the company with friend William Morgan after leaving his post as president of the now-defunct Enron Corp. Forbes lists his net worth at $6.4 billion.

Kinder Morgan will more than double the size of its pipeline network by purchasing El Paso. The new pipeline system would stretch 80,000 miles — long enough to wind around the globe three times. Kinder Morgan's pipelines in the Rocky Mountains, the Midwest and Texas will be woven together with El Paso's expansive network that spreads east from the Gulf Coast to New England, and to the west through New Mexico, Arizona, Nevada and California.

"We believe that natural gas is going to play an increasingly integral role in North America," Kinder, who is also the company's chairman, said on Sunday when the deal was announced.

Robert McFadden, a Houston-based natural gas pipeline consultant, said the expanded network will make it easier to move natural gas from new shale fields that have mushroomed across the U.S. in the past few years.

"Think of it like federal highways and toll roads," McFadden said. "The more options you have to get from point A to B, the shorter your trip."

Pipeline companies, which get paid for moving natural gas from the field to the market, have been in big demand recently as drillers tap rich new deposits in Pennsylvania, Montana, Utah and other states. The pipeline companies been able to keep transport fees roughly constant during the past several years, even though natural gas prices have dropped from more than $13 per 1,000 cubic feet in 2008 to less than $4, pipeline this year.

The acquisition comes on the heels of other consolidation in the industry. Energy Transfer Equity is planning to buy Southern Union Co. for $5.7 billion after a tug of war with Williams Cos.

With more pipelines under its control, Kinder Morgan could charge suppliers higher transport fees, and that may affect the price that utilities and other major natural gas buyers pay for natural gas. But home owners and other retail natural gas customers won't notice much of a change on their monthly bills, if any. Retail gas bills are largely influenced by local distribution costs and other items that won't change with this deal, McFadden said.

Once approved, Kinder Morgan said it will also become the largest independent transporter of gasoline, diesel and other petroleum products. It will also be the largest independent owner and operator of petroleum storage terminals. It will be the largest transporter of carbon dioxide in the U.S., moving about 1.3 billion cubic feet per day.

Kinder Morgan and El Paso are both based in Houston. Kinder will remain chairman and CEO of the combined company.

The combined company will surpass other pipeline companies like Enterprise Products Partners LP, also based in Houston. Enterprise operates about 50,200 miles of pipelines.

The companies valued the deal at $26.87 per El Paso share, which includes $14.65 in cash, 0.4187 in Kinder Morgan shares and 0.640 in Kinder Morgan warrants.

Based on El Paso's about 770.25 million outstanding shares, the deal is worth about $20.7 billion.

Kinder Morgan is also assuming $13 billion, net of cash, of El Paso debt as part of the deal. It intends to fund the purchase with a combination of equity and more debt. But once the deal closes, the company said it plans to sell off El Paso's exploration and production assets and the cash raised will help reduce that debt.

Kinder Morgan said the deal is expected to boost Kinder Morgan's shareholder value through increased cash flow and future growth opportunities. It's also expected to boost Kinder Morgan's dividends and result in about $350 million a year in cost savings.

El Paso had announced plans to spin off its exploration and production unit in May.

The acquisition, which has been approved by the board of both companies, is expected to close in the second quarter of next year and needs regulatory approval.

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STEPHEN ROACH: China Is Heading For A Soft Landing, And All Those Ghost Cities Will Become Teeming Urban Centers

Stephen Roach is a member of the faculty at Yale University, is Non-Executive Chairman of Morgan Stanley Asia and the author of The Next Asia.

NEW HAVEN – China’s economy is slowing. This is no surprise for an export-led economy dependent on faltering global demand. But China’s looming slowdown is likely to be both manageable and welcome. Fears of a hard landing are overblown.

To be sure, the economic data have softened. Purchasing managers’ indices are now threatening the “50” threshold, which has long been associated with the break-even point between expansion and contraction. Similar downtrends are evident in a broad array of leading indicators, ranging from consumer expectations, money supply, and the stock market, to steel production, industrial product sales, and newly started construction.

But this is not 2008. Back then, global commerce was collapsing, presaging a 10.7% drop in the volume of world trade in 2009 – the sharpest annual contraction since the 1930s. In response, China’s export performance swung from 26% annual growth in July 2008 to a 27% contraction by February 2009. Sequential GDP growth slowed to a low single-digit pace – a virtual standstill by Chinese standards. And more than 20 million migrant workers reportedly lost their jobs in export-led Guangdong province. By late 2008, China was in the throes of the functional equivalent of a full-blown recession.

Thanks to a massive fiscal stimulus, China veered away from the abyss in early 2009. But it paid a price for this bank-funded investment boom. Local governments’ indebtedness soared, and fixed investment surged toward an unprecedented 50% of GDP. Fears surfaced of another banking crisis, the imminent collapse of a monstrous property bubble, and runaway inflation. Add a wrenching European crisis to the equation, and a replay of 2008 no longer seemed far-fetched.

While there is a kernel of truth to each of these China-specific concerns, they do not by themselves imply a hard landing. Nonperforming loans will undoubtedly increase in response to the banking sector’s exposure to some $1.7 trillion of local-government debt, much of which was incurred during the stimulus of 2008-2009. But the feared deterioration in loan quality is exaggerated.

The reason: With rural-urban migration projected to exceed 310 million people over the next 20 years, there is reason to believe that much of the apparent overhang of housing supply will be steadily absorbed. Like Shanghai Pudong in the late 1990’s, today’s Chinese “ghost cities” are likely to be teaming urban centers in the not-so-distant future. Meanwhile, deposit-rich Chinese banks have ample liquidity to absorb potential losses; the system-wide loan-to-deposit ratio is only about 65% – well below earlier pre-crisis levels that were typically closer to 120%, according to a recent analysis by the Xerion team of Perella Weinberg Partners.

Nor is the Chinese property market about to implode. Yes, a building boom and speculative excesses have occurred. But a year and a half ago, the government moved aggressively to dampen multiple property purchases – raising down payments to 50% for second homes and to 100% for third homes. While that halted much speculative activity, house prices have remained at elevated levels – underscoring lingering affordability issues for China’s emerging middle class.

Notwithstanding that problem, major imbalances in Chinese property markets should prove to be the exception over the next two decades.  While there could be supply-demand mismatches in any given year, with an average of roughly 15 million citizens a year slated to move from the countryside to newly urbanized areas, demand should rise to meet supply. 

Inflation is always a serious risk in China – especially with headline increases in the country’s Consumer Price Index surging through the 6% threshold this summer. The government has responded forcefully on four fronts.

First, food inflation, which accounts for about half the recent run-up in overall prices, has been addressed by administrative measures aimed at cutting fertilizer costs and removing bottlenecks to increased supplies of pork, cooking oil, and vegetables. Second, in an effort to curtail excess bank lending, reserve ratios were increased nine times in the past 11 months. Third, the rate of currency appreciation has edged up. Finally – and perhaps most importantly – the People’s Bank of China has raised its benchmark policy rate five times since October 2010. At 6.5%, the one-year lending rate is now 0.3% above August’s headline inflation rate.

If food inflation recedes further, and the headline inflation rate starts to converge on the 3% core (non-food) rate, the result will be the equivalent of "passive monetary tightening" in real (inflation-adjusted) terms – precisely what the inflation-prone Chinese economy needs.

All of this underscores a potential silver lining. An increasingly unbalanced Chinese economy cannot afford persistent 10% GDP growth. Provided that there is no recurrence of the severe external demand shock of 2008 – a likely outcome unless Europe implodes – there is good reason to hope for a soft landing to around 8% GDP growth. A downshift to this more sustainable pace would provide welcome relief for an economy long plagued by excess resource consumption, labor-market bottlenecks, excess liquidity, a large buildup of foreign-exchange reserves, and mounting inflationary pressures.

For China, there is a deeper meaning to recent global developments.  A second major warning shot in three years has been fired at this export-led economy.  First, the United States, and now Europe – China's two largest export markets are in serious trouble and can no longer be counted on as reliable, sustainable sources of external demand. As a result, there are now major questions about the sustenance of China's long powerful export-led growth model.

Accordingly, China has no choice but to move quickly to implement the pro-consumption initiatives of its recently enacted 12th Five-Year Plan. Strategic transition is what modern China is all about. That’s what happened 30 years ago, when economic reform began.  And it needs to happen again today.  For China, a soft landing will provide a window of opportunity to press ahead with the formidable task of increasingly urgent economic rebalancing. 

Stephen S. Roach, a member of the faculty at Yale University, is Non-Executive Chairman of Morgan Stanley Asia and the author of The Next Asia.

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Robin Griffiths: Gold Will Become The Greatest Bubble

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Let's check in on British gold bull Robin Griffiths.

Griffiths tells King World News the recent dip is a correction he would buy. A huge gold bubble driven by money printing and emerging market demand hasn't even started yet:

"When gold was over $1,900 it was too high, too soon.  The deviation above what I would call a sustainable moving averages was too high.  If there is a setback I would see that as another buying opportunity.  I believe gold will become a bubble, possibly the greatest bubble I am going to live through, but it isn’t a bubble yet."

The Cazenove Capital strategist says stocks could head much lower this fall:

“Until we get clarity on the Greek issue, equity markets will continue in their bear phase.  Between now and late October they will be lower again, with a similar fall to the August low.  It will be very scary, it might even be described as a crash.”

Read more at KWN >

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If You Want Job Security, Become A Data Scientist

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Image: Business Insider

Data scientist is the hot new gig in tech, says Fortune, which points out that: 

Stanford University's course on data mining is packed: More than 120 students registered last year; when it was first offered five years ago, just 20 signed up.

"That shows you the growth and interest in large-scale data mining," says course instructor Anand Rajaraman, who also runs @WalmartLabs. "Companies want these people, and they become more attractive if they learn the skills."

Fortune also highlights a McKinsey Global Institute study that says "by 2018 the U.S. could face a shortage of up to 190,000 workers with analytical skills." 

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