The cash and stock deal values El Paso at a 37 per cent premium to its Friday market value, and comes as Exxon Mobil and other oil majors are spending billions of dollars to develop and produce shale gas and crude oil in areas with poor infrastructure.
The combined El Paso and Kinder Morgan would own about 80,000 miles of pipe stretching from coast to coast, and could demand higher transport fees from oil and gas producers, which could then raise the prices that power companies and other end users pay for gas.
“Now that KMP 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,” said Chris Jarvis, president and founder of Caprock Risk Management in Rye, New Hampshire.
“We expect this to have a positive impact on the natural gas markets, likely setting the stage for addition mergers and acquisitions in the space.”
It was not immediately clear how regulators would view the deal. Kinder Morgan said it expected the deal to close in early 2012.
“We believe that natural gas is going to play an increasingly integral role in North America,” Kinder Morgan chief executive Richard Kinder. “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.”