HOUSTON (Dow Jones)--Energy Transfer Equity LP's (ETE) $7.9 billion purchase of Southern Union Company (SUG) creates the largest natural gas pipeline in the U.S., just as a glut of the commodity threatens to choke some pipeline systems.
The merged companies will have capacity to move 30 billion cubic feet a day of natural gas along nearly 45,000 miles of pipeline, most of it in Florida, Louisiana and Texas. The deal comes as new drilling technologies have unlocked previously unobtainable gas reserves, creating a glut of natural gas in the U.S. market.
Increased oil production in the Permian Basin and Eagle Ford regions of Texas are bringing more natural gas liquids out of the ground, causing congestion along the pipelines systems that connect those areas to market, Warren said during a conference call with investors.
"I personally see a train wreck if someone doesn't build takeaway capacity in that region very soon," Warren said. "We're committed to doing that."
Energy Transfer plans an additional $1.7 billion in expansion projects, at least some of which will target the growing natural gas liquids production in south Texas, said Energy Transfer Chairman Kelcy Warren.
Warren said natural gas prices would remain low for the next two or three years. The pipeline company will charge fees to clients who want to transport gas and therefore is somewhat--but not totally--shielded from commodity price movements, Warren said.
"The margin paid to move gas from one point to another point has contracted," Warren said.
Energy Transfer will reinstate dividend payouts "at least equal to net income" in the near future, an unidentified company executive said during the conference call.
-By Ben Lefebvre, Dow Jones Newswires; 713-547-9201; ben.lefebvre@dowjones.com
(END) Dow Jones Newswires
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