Kinder Morgan is excited about what the future holds.
Richard Kinder, co-founder and executive chairman of Kinder Morgan (KMI 0.52%), knows more about the natural gas midstream space than anyone. He helped build the company into a national leader in natural gas infrastructure. Kinder Morgan operates 60,000 miles of gas pipelines (transporting 40% of the nation’s gas production) and has an interest in 702 billion cubic feet of operating gas storage capacity (15% of the nation’s total). He has played a role in the development of many of these assets over the years to support growing gas demand.
That demand is higher than ever, according to his comments on a recent third-quarter earnings conference call. This view is driven by confidence that the pipeline company should experience meaningful growth for years to come.
plenty of opportunities
Richard Kinder opened Kinder Morgan’s third quarter conference call with his usual outlook for the natural gas market. He reminded the audience, “I have been speaking for the past several quarters about our view of future demand for natural gas, with strong growth from LNG exports, exports to Mexico, and electricity generation.” These catalysts could increase natural gas demand by an additional 20 billion cubic feet per day (Bcf/d) by 2030 (from last year’s level of 108 Bcf/d).
In addition, new catalysts are emerging. Kinder noted that the sector is “benefiting from the tremendous need for AI and data centers.” Data centers require an incredible amount of power, and running AI applications requires even more. As a result, electricity usage in the country is rapidly increasing, and there is a strong expectation that it will increase at an annual rate of 2% to 4% until 2030. Kinder Morgan estimates that this could result in an additional 3 to 6 Bcf per day of additional gas demand, potentially leading to an upside in electricity usage. 10+Bcf/day.
The company believes that these catalysts will have a material and positive impact on its growth. Kinder commented, “In fact, in my decades of experience in the midstream sector, I have never seen a macro environment so rich in opportunities to build out natural gas infrastructure in stages.” . He expects the company to become a major player in the infrastructure development needed to support growing gas demand. “As these projects come online, the company should be able to grow EPS, EBITDA and DCF (distributable cash flow) on a consistent and sustainable basis for many years to come,” he said. .
A growing list of ongoing projects
Kinder Morgan has already begun to take advantage of the growing need for gas infrastructure expansion. Kinder discussed several projects he recently approved. “In July, we announced the approximately $3 billion Southern System Expansion 4 project, which is backed by long-term contracts with shippers and will increase our Southern Natural Gas Southern Line capacity by one day,” he said. “It is designed to help accommodate growth by approximately 1.2 Bcf per year.” Power generation and residential commercial demand in the Southeastern US market. ” The company will finance $1.7 billion of the project cost. The expansion is expected to begin commercial service in the second half of 2028.
Meanwhile, “Today, we are announcing the expansion of our GCX system in Texas, which will enable our customers with long-term throughput agreements to move significant additional gas from the Permian Basin.” he said. The company will finance $161 million of the $455 million project, which is expected to be operational by mid-2026.
The company “plans to announce additional significant projects in the coming months that will allow us to grow and expand our network to better meet the needs of our customers and benefit our bottom line,” the co-founders said by phone. stated at the meeting. .
CEO Kim Dang spoke about several opportunities during the conference call. “Current discussions around power opportunities are well above the 5 Bcf per day we stated in the second quarter. Our internal numbers on overall natural gas market growth are That’s roughly 25 Bcf.” She then considered the myriad factors driving this demand. On the electricity side, population and business migration to the southern half of the country is increasing energy demand in an already tight market.
Meanwhile, the CHIPS Act, lower raw material prices, and national security are driving onshoring and nearshoring of manufacturing. On top of that, the growth of renewable energy is increasing the demand for gas to offset that intermittency. “And of course, the demand for data centers is skyrocketing,” Dunn said. “Regardless of demand factors, one project often creates the need for the next.”
Dang noted that the company has some very large projects in development in the $1.5 billion to $2 billion range. However, most are small “singles and doubles”. While the company won’t capture all of these projects and larger projects will take some time to materialize, “more opportunities continue to be set up throughout this year and conversations become more focused and It’s becoming more concrete.”
There’s plenty of fuel to grow
The co-founders of Kinder Morgan had never before seen such rich opportunities to expand their business. Multiple demand drivers are driving the need for more gas in the future, which means the country will need more gas infrastructure. As a leader in this field, Kinder Morgan is well positioned to take advantage of this opportunity. This should fuel meaningful growth for the company over the next few years, making it look like a great stock to buy for the long term.
