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Billion-dollar pipeline could spell nearly $500M impact for state

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By Matthew Clark
mclark@scbiznews.com
Published Feb. 24, 2016

A proposed $1 billion pipeline project that starts in Belton and runs to Jacksonville, Fla., could have a potential economic impact of nearly $500 million for the state of South Carolina.

Joey Von Nessen, research economist with the Darla Moore School of Business at the University of South Carolina, recently completed a 23-page study to quantify the benefits of the Palmetto Pipeline project to the state and the six-county region where the pipeline is being proposed.

Kinder Morgan, the company proposing the Palmetto Pipeline, commissioned the study.

However, not everyone is in favor of the project, including the Savannah Riverkeeper, who said the project was not needed.

The Palmetto Pipeline Project

The pipeline, proposed by Houston-based pipeline company Kinder Morgan, is a 360-mile project aimed at delivering an additional 167,000 barrels of refined petroleum product per day through South Carolina, Georgia and Florida. It is intended to be an extension of Kinder Morgan’s Plantation System that brings petroleum from New Orleans to Washington, D.C., with both domestic and potentially foreign distribution.

“It is a natural response to an increase in demand for reliable sources of energy, and that is not just happening in South Carolina, but across the country,” Von Nessen said.

CLICK TO ENLARGE. The red line indicates the proposed route of Kinder Morgan’s Palmetto Pipeline. The pipeline will start in Belton and run through Savannah, before ending in Jacksonville, Fla. (Map provided)CLICK TO ENLARGE. The red line indicates the proposed route of Kinder Morgan’s Palmetto Pipeline. The pipeline will start in Belton and run through Savannah, before ending in Jacksonville, Fla. (Map provided)
The construction of the pipeline which, according to Kinder Morgan officials, will not start until all required permits are secured, is expected to take approximately one year, and Von Nessen said the construction of the pipeline is estimated to benefit South Carolina in terms of both jobs added and goods and services purchased. He said that construction is expected to have a $452 million statewide economic impact.

“That is going to be associated with jobs and income in the state because anytime you have a business providing goods and services, there is typically jobs along with it.” Von Nessen said.

Allen Fore, vice president for public affairs at Kinder Morgan, said the Palmetto Pipeline includes about 110 miles of pipeline in South Carolina that helps deliver product to North Augusta and that will create a new delivery system for Savannah and Jacksonville.

“We are looking at an in-service in the first quarter of 2017,” Fore said. “You have to start by defining a route, which we are doing, then working with landowners and checking the land to see if it is proper for a pipeline, and we are about 85% through that in South Carolina.”

But, he said no dirt will be turned until all of the required permits have been secured. This includes permits from the S.C. Department of Environment and Environmental Control, U.S. Army Corps of Engineers, U.S. Fish and Wildlife Service and the State Historic Preservation Office.

Fore said Kinder Morgan plans to file those permits “in the next two to three months,” then the state will have its review of the project. Construction on the Palmetto Pipeline can start by the end of 2016, Fore said, pending regulatory approval.

“We have operated pipeline terminals in South Carolina for decades, and we are very familiar with the permitting,” Fore said. “We know the stringent requirements the states have. Before we design a project, we have to look at different variables, and if we can’t design above and beyond, then we don’t move forward.”

Additional economic impact and joint venturing

One of the larger economic benefits to the construction of the pipeline, according to Von Nessen’s report, is the 3,138 jobs statewide associated with the construction. He said that translates to $150 million in labor income. Additionally, a direct effect of the construction will be local spending on materials and a supply chain multiplier that will largely affect the construction industry.

“When any company comes in and spends money on a new project, they are purchasing goods and services from local providers, and those providers have to make purchases from their providers and so on,” Von Nessen said.

Of the six counties the pipeline will directly affect, Anderson County stands to gain the most economic impact at $146 million. Anderson is followed by Aiken County at $46 million, Greenwood County at $41 million, Edgefield County at $33 million, Abbeville County at $31 million and McCormick County at $28 million counties.

Kinder Morgan could be shopping around a joint venturing measure for the Palmetto Pipeline and the Elba Liquefaction project in Georgia. At a meeting with analysts in January, Kinder Morgan CFO Kimberly Dang said the pipeline and Elba project were potential projects the company would look for investment from private equity firms. The projects combined total $3 billion.

Fore said the remarks by Dang were related to Kinder Morgan’s “high grading of its current backlog of projects.” The company’s five-year backlog was trimmed to $18.6 billion, and the plan is to spend another $3.28 billion on new assets in 2016. Kinder Morgan spent approximately $6.5 billion on building and acquiring new pipelines in 2015.

“We are exploring multiple options related to our entire backlog of projects, and joint venturing is one of those options,” Fore said. “Kinder Morgan would remain as the contractor and operator in any joint venturing scenario, and our relationship within the communities we serve would not change.”

Not all in favor

There is opposition to the Palmetto Pipeline. The Savannah Riverkeeper, based in Augusta, is working alongside the Altamaha Riverkeeper, Ogeechee Riverkeeper, Satilla Riverkeeper, St. Johns Riverkeeper and the Center for a Sustainable Coast to push back the pipeline proposal. According to the Savannah Riverkeeper website, the pipeline is “a risk we just can’t take.”

“My end game is that they have to act like a private company and not use government control,” said Tonya Bonitatibus, the Savannah riverkeeper. “I want to see this out of the wetlands and in a place where it can be monitored.”

According to the Kinder Morgan specifications, the Palmetto Pipeline will consist of 16-inch diameter steel pipe and will be buried underground. Fore said the pipeline is “the safest way to transport” because it is underground. He said the pipeline will reduce truck traffic, but the pipeline terminals have to be manned by an educated workforce.

“All of the environmental factors have to have permits, and once they are in service, they have to be maintained properly and that includes 24/7 monitoring and using technology to make sure pipelines remain the safest way to transport,” Fore said. “We want to provide a pipeline that is essential to economic development, but also one that is sensitive to those environmental concerns.”

Kinder Morgan has not filed for any permits, only suggested that the permitting process will be “ongoing.”

“No impact is worth it if the need isn’t really there, and that is where we start at,” Bonitatibus said. “Do we need it, or is there a shortage of gasoline? The answer is no.

“It’s all just words and games until something is put on paper.”

Increase in supply

According to Von Nessen’s report, another benefit to the pipeline transport is bringing an increase in petroleum supply to the region. He said that can translate into a change in product prices because the increased supply is readily available. In the report, it was estimated that each household can save up to $51 because of potential lower costs in housing and transportation.

“That might not seem like much, but when you aggregate it, it actually becomes quite large, and that is money that stays in people’s budget to spend in other industries,” Von Nessen said.

All of the household savings comes to about $86 million in additional spending, if all the savings are spent, according to Von Nessen. He said the total economic development multiplier for the Palmetto Pipeline is 1.7 — or, for every $100 spent by Kinder Morgan on the project, an additional $70 will be added to the total economic activity in South Carolina.

“It is an important project,” Fore said. “But, this is not just based on today and tomorrow, but years from now. This is going to be a game changer for the region because we are talking about a significant change in supply of energy.

“Available and affordable energy is essential to economic development. Businesses look at the cost of energy and the reliability of it, so the expansion of systems is absolutely essential.”

The increase in supply is likely to benefit Augusta and Jacksonville as the company estimates at least 50%-60% of the pipeline’s refined products will go to consumers in those markets. Because the third terminal in the project is in Jacksonville, southern Georgia may also stand to gain from the additional supply.

“However, Palmetto’s shippers will determine the ultimate destinations for products transported on the Palmetto Pipeline,” Fore said.

Editor’s note: This story has been updated to reflect that Kinder Morgan commissioned Von Nessen to conduct the study.

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