Calgary, Alberta-based distribution leader Kinder Morgan Canada is expanding one of its petroleum transmission systems to meet energy customers' growing needs.

Building pipelines across different provinces in Canada involves negotiating with the country's various cultures. Pipeline companies must maintain a good relationship with each community, should new pipelines be built or the current pipelines be expanded.

In western Canada, the location of one of Kinder Morgan Canada's pipelines, communities range from towns and cities to traditional First Nations lands. The company had to negotiate and be respectful to the communities when that pipeline was built and while it's been in operation, says Ian Anderson, president of Kinder Morgan Canada.

"Doing business in every country and community is different," Anderson notes. "We have to build a respectful and trusting relationship first. One of the material efforts that any pipeline company has to undertake today is discussions with the community, through which many of these pipeline projects go. We have successful relationships with all communities we build through."

Keeping the communities safe is a priority when the company builds and maintains pipelines. Public communication programs maintain Kinder Morgan Canada's relationships with communities along its transmission systems.

The programs focus largely on safety and incident prevention, Anderson says, and also the location of the pipeline and what to do in the event of a crisis. In addition, a multi-step maintenance program to protect the people in the community and the environment includes hydrostatic testing, electronic checks of the pipeline's internal condition, a visual inspection and replacement of damaged pipeline sections.

"Safety is our No. 1 goal," Anderson says. "By treating each community with respect and care, we are able to forge valuable relationships with our customers and landowners."

Kinder Morgan Canada is linked to the community in other ways, as well. For example, Kinder Morgan Inc. started the Kinder Morgan Foundation. The Kinder Morgan Foundation is dedicated to supporting non-profit youth programs that support education, arts and culture within the company's operating territories in North America.

Anderson says that Kinder Morgan Canada recognizes that the country's youth represent the country's future, not only for the communities but also for the country. The Kinder Morgan Foundation makes charitable contributions to organizations and programs that enhance opportunities for the nation's youth. Kinder Morgan Foundation also funds the Kids Mini Grant program, which provides funding and volunteer support to youth programs throughout Kinder Morgan's retail natural gas communities.

Kinder Morgan's Pipelines
The Kinder Morgan family of companies includes three separate entities: Kinder Morgan Inc., Kinder Morgan Energy Partners L.P. and Kinder Morgan Management LLC. Kinder Morgan Inc. is one of the largest energy transportation, storage and distribution companies in North America. It owns an interest in or operates approximately 43,000 miles of pipelines that transport primarily natural gas, crude oil, petroleum products and carbon dioxide (CO2). It also operates more than 150 terminals that store, transfer and handle products like gasoline and coal; and provides natural gas distribution service to more than 1.1 million customers.

Kinder Morgan Canada does not own the products in the pipeline, but transports them on behalf of more than 35 corporations in Canada and the United States.

Big Picture
Kinder Morgan Canada - previously known as Terasen Pipelines Inc., a subsidiary of Kinder Morgan Inc. - is, as a part of the broad Kinder Morgan corporation, a leader in the petroleum industry in North America, with almost 13,000 miles of pipeline that transport about 2.7 million barrels per day of refined petroleum products and crude oil. Kinder Morgan Canada manages a current asset base of more than $2.5 billion and has $4 billion of growth opportunities under development. The company is looking to further invest in the "pipeline backbone" from Alberta to the rest of North America, says Anderson.

Finding, extracting and refining natural and synthetic crude oil are important for obvious reasons in today's economy. Just as important, though, is the infrastructure of pipelines that is required to link the extraction facilities to the refineries and the refineries to storage terminals and, ultimately, the markets for finished petroleum products.

Kinder Morgan Canada operates three petroleum transmission systems:
· The Corridor pipeline system, a 300-mile pipeline that moves diluted bitumen from the Albian Sands' Muskeg River Mine in the Athabasca Tar Sands region of Alberta to the Scotford Upgrader near Fort Saskatchewan, and synthetic crude oil from that facility to marketing terminals in Edmonton

· The Trans Mountain System, a 715-mile pipeline transporting crude oil and refined products from Alberta to Vancouver, British Columbia, and Washington state in the United States

· The Express/Platte systems, which combine 1,700 miles of pipeline that transport crude oil from Alberta through the Rocky Mountains in the United States to Casper, Wyo., and continuing through the plains and the Midwest to Wood River, Ill.

These three pipeline systems transport a variety of petroleum products from crude oil and refined petroleum products to aviation turbine fuel and diluted bitumen. Kinder Morgan Canada's petroleum transportation business has expanded, and now provides two major links between Canadian producers and U.S. markets.

Trans Mountain was Kinder Morgan Canada's first pipeline, established in 1951 when the Parliament of Canada granted the company a charter, setting in motion the construction of what today still serves as the key transportation link between Alberta's oilfields and the West Coast.

A great deal has changed since 1951, including the role of the pipeline system itself. Originally designed to transport just crude oil, it was later modified to also allow customers to batch refined products. It is one of the few pipeline systems in the world capable of this type of operation.

Growth Opportunities
Production from Alberta's oil sands will be key to meeting rising oil demands in North America and overseas markets in the coming years, Anderson says. Production from western Canada is expected to increase from approximately 2.2 million barrels per day to 2.6 million barrels per day in 2006, to more than 3.1 million barrels per day in 2010 and to more than 4.5 million barrels per day by 2015. Virtually all of this increase will come from the Alberta oil sands.

According to Anderson, oil sands production is expected to grow from one million to between 3.5 million and four million barrels per day over the next decade. Kinder Morgan's goal is to transport its share of that increased production.

"There is a need for infrastructure to move more crude oil to refineries and product to markets in the United States," Anderson says. "This requires investment in more projects that will enable the transportation of natural and synthetic crude oil.

"What we're doing is looking at the three pipelines mentioned and how to increase the capacity of those lines in order to increase exports from Canada," Anderson says.

Expansion Project
The company is in the process of expanding the Trans Mountain pipeline, which runs from the Rocky Mountains to the west coast. Right now, the first phase of expansion is under construction. Trans Mountain moves 225,000 barrels of heavy oil per day. After the first full expansion is finished, it is expected to move about 300,000 barrels per day.

This summer, Kinder Morgan Canada will seek shipper support to loop another section of the pipeline that will increase its barrels per day by even more by mid-2008. When fully built out, the Trans Mountain system will move 700,000 barrels per day to the lower mainland of British Columbia.

Further plans to build out a further 400,000 per day of capacity to a deep water port in Kitimat, B.C., will require additional Asian support and will rely heavily on the First Nations relationships and consultations which the company is already well suited to, Anderson says.

"Our expansion of the Trans Mountain system will unlock a significant option for Canadian producers, as access to Washington state and California refineries via our Vancouver dock facility enhances market flexibility greatly," Anderson says.

Meeting Requirements
There are also new pipeline requirements in Alberta; in three to five years, Kinder Morgan Canada will need to move oil sands to Edmonton, either to a terminal area for oil sands or to upgraders and refineries. Terminal tanks are also necessary for producers to park, store and blend the products to protect quality and seize market optionality.

The company's strategy is to leverage and expand existing infrastructure. "We want to grow in two ways in the future," Anderson says. "We're looking to not just be about mega-projects and pipelines, we want to focus on smaller projects, too. We also want to be the company on the ground in Alberta that will provide smaller pieces of pipes and tanks and terminals. At the same time, we want to be in a position to respond to broader needs for export pipeline capacity. We are in concert with broader projects.

We are pursuing terminal tank opportunities in Alberta and British Columbia for crude and refined products."

Being a broad pipeline company requires the support of different cultures; Anderson has already thought that through. "If the market supports it, we might have the option of branching off and building a pipeline to Kitimat, in northwest British Columbia," Anderson says. "This line would provide export capacity to serve Asian markets. That project would require Asian support."

Challenges
Anderson says a big challenge for Kinder Morgan Canada is dealing with the tight labor and material contract markets in Alberta. "A natural market constraint will be the capacity of the work force to accomplish all our projects over the next decade," Anderson says. "At this point, no one wants to pull back on a project due to a shortage of labor. We are very aggressive in locking up labor, contractors and mill space materials so projects can go ahead as planned."

This is creating a heated market for materials and contractor pricing, but that hasn't become an insurmountable challenge yet. "Right now, the salary and wages we pay are competing," Anderson says.

There's no shortage of capital in the market, according to Anderson. "The market has been kind to us that way."Another challenge is to design and propose the right pipeline solution at the right time. "Producers want flexibility in where oil could go," Anderson says. "It is flexibility to access the United States mid-continent or the Gulf Coast or the West Coast that producers are looking for - pipelines need to accommodate that."

Getting it Done
Kinder Morgan Canada does not let competing for projects distract it from of its base business. Operating business representatives make up two-thirds of the company; it is those representatives' jobs to make sure the business is running safely.

"What I'm seeing is more and more critical integration of business development in concert with engineering design and execution," Anderson says. "The more we push business development to commitments and commercial contracts with customers, they do so with full integration behind them of engineers and project executors. They deliver on the same timeline together and at the cost established in the commercial deal."

Anderson adds that it gets increasingly critical, as Kinder Morgan Canada grows, that all hands are "tied together" and everyone is working together.

To achieve this, Kinder Morgan Canada benchmarks its success by asking questions, Anderson says. "We ask, ‘Are we meeting the expectations of investors and shareholders?' We are not about to accept returns that do not meet their expectations," Anderson says. "We also ask, ‘Are we providing the value proposition to shippers that encourages them to ship more and do more business?' We continue to look to customers to tell us they respect and trust doing business with us."

If Kinder Morgan Canada's goals are achieved, its future includes becoming a part of the largest independent terminal operator in North America and the largest CO2 transporter in North America.

As of now, Kinder Morgan Inc. is the largest CO2 transmission operator in the United States. CO2 is an emerging issue in Alberta. Opportunities exist for chemical plants, power plants, refineries and upgraders to capture CO2 and compress it, store it and send it through pipelines to traditional oil fields to be used in oil recovery.

Being the largest CO2 transporter in North America positions Kinder Morgan Canada well to provide the pipelines and infrastructure to advance CO2 capture and enhanced oil recovery in Alberta.

As for being the largest terminal operator in North America, Kinder Morgan's success in the United States should "bring lots of experience to Canada's market," Anderson says.

In the future, Kinder Morgan Canada plans to continue to respond to the needs of the market. "We don't see ourselves as the producer," Anderson explains. "We serve the industry as the intermediary, moving commodities to the markets. "This makes it critical for us to be highly respected and a safe, effective operator. We have a history of being seen as that, and I plan to ensure that will continue in the future."