Kinder Morgan Touts 'Enormous Opportunity' for Natural Gas Exports to Mexico, World

Kinder Morgan Inc. is forecasting substantial growth in U.S. natural gas exports, including to Mexico via pipeline and the global market via LNG, over the coming years.

KMI expects net U.S. natural gas exports to Mexico to reach 7 Bcf/d by 2030, up from around 6 Bcf/d in 2021, according to internal and Wood Mackenzie projections.

KMI is currently contracted to export around 4 Bcf/d to Mexico, management said. KMI pipelines serving Mexicos natural gas market include the 640 MMcf/d Mier-Monterrey system in Mexico, the 2.1 Bcf/d Permian Highway Pipeline connecting West Texas supply with the Agua Dulce hub, and the El Paso Natural Gas system serving six U.S. states along with northern Mexico.

The company expects U.S. LNG export demand, meanwhile, to more than double to 28 Bcf/d by 2030, Executive Chairman Richard Kinder said.

Given the situation in Europe today, which will result in more long-term contracts and the continuing usage in Asia, this hyper-growth scenario actually seems pretty reasonable to me, Kinder told analysts during a call to discuss third quarter earnings. Thats a huge increase, and most of it will occur in Texas and Louisiana, where so much of our asset base is located.

He cited that KMI currently moves about 50% of the gas consumed by U.S. liquefied natural gas export terminals, and we expect to maintain or expand that share in the future.

KMI is undertaking multiple projects to serve growing natural gas export demand, including an expansion of the Permian Highway Pipeline LLC (PHP) system and the Evangeline Pass project in Louisiana and Mississippi.

Kinder added that we expect to announce additional projects in the coming months. When you add the increasing need for natural gas for industrial uses, electric generation, and exports to Mexico to that massive LNG demand, the result is an enormous opportunity to grow our system in a capital efficient manner.

U.S. LNG export demand has averaged above 11 Bcf/d so far this year, and thats with the absence of roughly 2 Bcf/d of demand from the Freeport LNG facility, which has been shut down since June, he noted.

Newbuild Challenges

Despite the bullish demand outlook, newbuild natural gas infrastructure projects face an exceedingly challenging permitting environment. The 78-year-old KMI co-founder said there is a silver lining, though.

As we all know, its become increasingly difficult to build new greenfield pipeline projects, particularly in the Northeast and other areas outside the U.S. Gulf Coast, said Kinder. While this situation is, in my opinion, unfortunate and poor public policy, it does make existing infrastructure even more valuable.

He added that having such an extensive network already in place affords great opportunity for a company like ours to extend and expand our assets on an incremental basis without the Herculean task of permitting and building a new greenfield project.

He explained that, Those step-out projects can provide great service to our customers and yield a very good return for our shareholders. Were fortunate at KMI that a large portion of our network is in Texas and Louisiana states that understand and appreciate the need for new energy infrastructure and where so much of the demand for additional throughput, particularly natural gas, is located.

Strong Demand For Natural Gas Capacity

KMI is targeting an in-service date of Nov. 1, 2023 for the roughly 550 MMcf/d capacity expansion of PHP, which would deliver more natural gas from the Permian Basin to Gulf Coast markets.

The Evangeline Pass project is designed to add up to 2 million Dth/d of natural gas capacity on the Tennessee Gas Pipeline LLC (TGP) and Southern Natural Gas (SNG) systems in Louisiana and Mississippi.

For KMIs proposed Cumberland pipeline project, meanwhile, construction is set to begin in August 2024 with an expected in-service date of September 2025, pending approval of required permits and clearances. The project consists of a 32-mile, 30-inch diameter lateral splitting off from TGP that would provide about 245,000 Dth/d of additional gas supply to a proposed 1,450 MW natural gas-fired power plant in Cumberland, TN.

Our Natural Gas Pipelines segment continues to see strong demand for the extensive firm transport and storage services we offer, as well as favorable contract renewals on multiple assets across our network, said CEO Steve Kean. We are also moving forward with projects to provide additional transport capacity to LNG facilities and remain focused on continuing to be the provider of choice for that growing market.

Given the proximity of our existing assets to planned LNG expansions, we expect to maintain and potentially expand on our approximately 50% share of transport capacity to LNG export facilities.

The growing share of variable output wind and solar farms in the power sector, meanwhile, has placed a premium on natural gas storage capacity, according to Kean.

Domestically, we are seeing the market highly value our 700 billion cubic feet (Bcf) of working natural gas storage capacity, he said. Our customers are increasingly recognizing the role storage must play in an energy system that requires flexible deliverability as the contribution from intermittent renewable sources continues to grow in the power sector.

KMIs U.S. storage assets also help daily and seasonal variability in exports to Mexico, where no underground gas storage exists, management said.

Kean added, There is simply no question that the assets we operate and the services we provide will be needed for a long time to come. Similarly, it is indisputable that a lengthy transition to greater deployment of low carbon energy sources is underway and we are responding to that.

The CEO said roughly 80% of KMIs project backlog is in lower-carbon energy services, including natural gas, renewable natural gas, renewable diesel and feedstocks associated with renewable diesel and sustainable aviation fuel

Profits Up

The third quarter saw KMI sell a 25.5% equity interest in Elba Liquefaction Co. LLC for about $565 million. We used those proceeds to reduce short-term debt and create additional capacity for attractive investments, including opportunistic share repurchases, said KMIs Kim Dang, president.

The Natural Gas Pipelines segments financial performance was up in the third quarter of 2022 relative to the third quarter of 2021, primarily on increased volumes on our KinderHawk gathering system; continued strong demand for transport and storage services on Natural Gas Pipeline Company of America, Southern Natural Gas (SNG) and Midcontinent Express Pipeline; higher contributions from our Texas Intrastate system; and favorable pricing on the Altamont gathering system, said Dang.

KMI reported flat natural gas transport volumes relative to the third quarter of 2021. There were declines on the Texas intrastate system primarily because of the Freeport LNG terminal outage. There also was a partial pipeline outage on El Paso Natural Gas. Colorado Interstate Gas Co. and Cheyenne Plains Gas Pipeline volumes fell because of declining production in the Rockies, management said.

Volumes to Mexico were reduced in the third quarter as a result of third-party pipeline capacity added to the market, Dang said.

The declines were partially offset by increases on Kinder Morgan Louisiana Pipeline and Elba Express from increased deliveries to LNG customers and on Southern Natural Gas because of higher demand from power generation customers.

Natural gas gathering volumes, meanwhile, rose 13% year/year with higher volumes primarily on KinderHawk, which serves the Haynesville Shale, the company said.

KMI reported net income of $576 million (25 cents/share) for the quarter, up from $495 million (22 cents) in 3Q2021.