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Leading petroleum product pipeline owner and operator Kinder Morgan Energy Partners L.P (NYSE:KMP) has partnered with San Antonio-based Valero Energy Corporation (NYSE:VLO) to build a new 136-mile, 16-inch pipeline to transport gasoline, jet fuel and diesel. Known as Parkway Pipeline LLC, the proposed initiative is estimated to cost $220 million.

While both companies will own the pipeline system, Kinder Morgan will be the operator. Parkway Pipeline is expected to have an initial capacity of 110,000 barrels per day (bpd) that can be eventually expanded to over 200,000 bpd.

The refined products would be shipped from refineries in Norco, Louisiana to the Collins, Mississippi hub, owned by a subsidiary of Kinder Morgan –– Plantation Pipe Line Company. Kinder Morgan has a 51% stake in the petroleum transportation hub of which it is also the operator. Thereafter, the refined petroleum products will be distributed by the pipeline systems, including Plantation, to important markets in the southeastern United States from this hub.

The pipeline is expected to begin operations by mid 2013 after getting approvals from the concerned environmental and regulatory authorities. It is expected to be accretive for Kinder Morgan unitholders upon completion as the project has a long-term backing of a credit worthy shipper.

To curtail environmental impacts, Parkway Pipeline construction will follow prevailing utility rights-of-way wherever possible. The project is expected to boost fuel supply, and at the same time offer all shippers larger access to Gulf Coast refineries.

Kinder Morgan’s continuous effort to upgrade its portfolio is evident from its newest business segment, Trans Mountain Pipeline (now under Kinder Morgan Canada), an approximately 715 mile transport system overbooked by a wide margin for September. Trans Mountain has a pipeline capacity of approximately 300,000 barrels per day.

Kinder Morgan holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the stock.

Read the full analyst report on VLO

Read the full analyst report on KMP

Source: Kinder Morgan-Valero Pipeline Pact