Kinder Morgan Inc. will go ahead with a South Texas pipeline connection that would transport crude from Phillips 66's 900,000 barrel-per-day (bbl/d) Gray Oak pipeline in the Permian Basin to delivery points at the Houston Ship Channel, the company said on July 17.

The pipeline operator expects the connection will begin service by the end of 2019 carrying 100,000 bbl/d. Kinder and Phillips began soliciting shipper commitments for the connection in February.

The company plans to spend $10 million on the project this year, and has contracts to start transporting 75,000 bbl/d for up to three years, CEO Steven Kean told investors.

"We wanted to find a way to get Permian barrels to KMCC (Kinder Morgan Crude and Condensate pipeline)," which delivers crude from the Eagle Ford Shale in South Texas to Houston Ship Channel destinations, Kean said.

The company is also considering converting an underutilized natural gas pipeline to carry crude from the Bakken shale in North Dakota and the Denver-Julesburg basin in Colorado.

The ongoing start-up of the company's Elba Island liquefaction facility may have to be suspended because of problems that have emerged in its super cooling equipment that produces LNG, but it expects to bring the first unit into service soon, Kean said.

The company's shares fell 2% to $20.18 in after-hours trading. Its second-quarter earnings of 23 cents a share had missed Refinitiv estimates by a penny.