Kinder Morgan Energy Partners, L.P. (KMP) — the largest independent owner and operator of petroleum product pipelines in the U.S. — completed its first commercial shipment of bio-diesel through its Plantation Pipeline Company. The process, a technological breakthrough in transporting bio-diesel through pipelines, carried the fuel to various marketing terminals across Georgia and Virginia.

Until now, shipment of bio-diesel has been limited to trucks and trains due to several problems in passing bio-diesel through pipelines. Bio-diesel tends to contaminate other fuels, particularly jet fuels, flowing through the same pipeline. Kinder Morgan’s breakthrough was to identify a proprietary additive that prevents this contamination. The injection of this additive — B99 — has enabled the pipeline transportation.

We believe that the Plantation Pipeline project should go a long way toward meeting demand for bio-diesel across the Southeast. Moreover, the ability to blend and transport bio-diesel through pipelines will benefit KMP’s customers over the other option of installing high cost blending facilities at respective marketing terminals.

Being one of the largest publicly traded Master Limited Partnerships (MLPs), KMP generally serves as a benchmark for the entire pipeline MLP group. Our continued favorable view of KMP units reflects the partnership’s strong distribution-growth prospects on the back of a long pipeline of organic growth projects and a diversified asset base. We reiterate our Buy recommendation.

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