Kinder Morgan expects 'hypergrowth' of US LNG to support pipeline expansions

Kinder Morgan Inc. will soon announce natural gas pipeline expansion projects to bring more feedgas to export terminals in the U.S., with robust demand in the global market fueling the company's expected growth in coming years, executives said on an earnings call.

Kinder Morgan is working on expanding its 550 MMcf/d Permian Highway pipeline and its Gulf Coast Express pipeline in the U.S. Gulf Coast region. The projects would move more Permian Basin gas to U.S. liquefied natural gas export terminals on the coasts of Texas and Louisiana.

The company also shared in its third-quarter earnings call Oct. 19 plans for a small expansion to its El Paso Natural Gas Co. LLC pipeline system in the U.S. Southwest to serve a new generation of planned LNG terminals in Mexico.

The company expects to announce more projects in the coming months, with a focus on serving the LNG sector that Kinder Morgan said could grow to 28 Bcf/d of production capacity by 2030.

"Given the situation in Europe today, which will result in more long-term contracts, and continuing use in Asia, this hypergrowth scenario actually seems pretty reasonable to me," company Executive Chairman Rich Kinder said. "That's a huge increase and mostly will occur in Texas and Louisiana, where so much of our asset base is located."

Pipeline placement

Kinder Morgan has emphasized its role as the gas transport provider of choice for a burgeoning U.S. LNG industry that has demanded record-high volumes of feedgas in 2022 year-to-date amid strong global demand for the U.S. gas. The company estimates it has about 5.7 Bcf/d in feedgas demand under long-term contract.

Even as it focuses on the long-term opportunity that LNG presents for pipeline operators, Kinder Morgan maintains a presence in the U.S. LNG export terminal sector proper. In September, Kinder Morgan closed the sale of half of its stake in Elba Liquefaction Co. LLC, the liquefaction component of its Elba Island LNG export terminal in Georgia, but the company continued to mull an expansion of the terminal.

S&P Global Commodity Insights forecast that U.S. LNG exports will rise to about 25 Bcf/d at the end of 2027, up from the 11.7 Bcf/d average recorded year-to-date.

Kinder Morgan moved an average of 38.6 Bcf/d in gas along its pipelines in the third quarter, after averaging about 38.5 Bcf/d in transport volumes in the third quarter of 2021.

Pipeline support

Stronger demand for natural gas transportation and storage services, due in part to the growth in LNG demand, prompted Kinder Morgan to upgrade full-year earnings guidance by 3%, from its original $2.5 billion target for the year.

"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," CEO Steve Kean said in an Oct. 19 earnings release.

Strong demand for gas storage also provided a tailwind for Kinder Morgan in the third quarter, with strong LNG demand and gas price volatility supporting storage demand.

"Domestically, we are seeing the market highly value our 700 Bcf of working natural gas storage capacity," Kean said Oct. 19. "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."

Kinder Morgan's pipeline segment, which comprises its gas pipeline and storage businesses, recorded net income of $1.16 billion in the third quarter, up from $1.09 billion in the same period in 2021. The company reported net income of $576 million in the third quarter of 2022, up from $495 million in the year-ago quarter.