Kinder Morgan (NYSE:KMI) sees an opportunity-rich environment for midstream infrastructure as natural-gas demand from LNG exports, power generation and industrial growth supports a growing pipeline project pipeline, Chief Financial Officer David Michels said during a fireside chat.
Michels said the company’s sanctioned backlog consists of board-approved projects supported by binding commitments from off-takers, generally covering more than 90% of planned capacity. Most of those projects are already under construction, he said, giving the company confidence that they will enter service and contribute EBITDA.
“We feel pretty confident” that new projects will at least replenish projects entering service in coming quarters, Michels said. The company had indicated in its second-quarter discussion that it expected to sanction more than $1 billion of projects from July through year-end, and Michels said it was confident that target would be met, potentially with additional projects.
Southeast Power Demand Drives SNG Expansion Discussions
A major focus is the Southeastern U.S., where utilities are planning for substantial new electricity demand. Michels said large-load connection requests across Southern Company, Dominion, Duke, Florida Power & Light and TVA exceed 200 gigawatts. Projects in more advanced stages or with executed contractual positions account for more than 50 gigawatts, he said.
While not all of that potential generation would be fueled by natural gas, Michels said 50 gigawatts would equate to more than 8 billion cubic feet per day of gas demand if it were entirely gas-fired.
Kinder Morgan and Southern Company recently launched an open season for the Southeast Connector project on the Southern Natural Gas, or SNG, system. The open season was scheduled to close Oct. 7. Michels said the process was “going well” and that Kinder Morgan expected to provide more detail during its next earnings call.
The company is also advancing its South System 4 expansion on SNG, which Michels said remains on budget and on schedule. The project has received its permit, and the company is securing rights of way, though construction has not yet started. Michels said the volume of anticipated utility demand has already prompted consideration of the next stage of expansion.
“We’re going to need connections north of it and potentially south of it,” he said of the broader infrastructure requirements. Kinder Morgan would seek multiple counterparties for the Southeast Connector, with utilities representing its preferred customer base.
Michels added that SNG likely has additional long-term expansion potential. He noted that the system has progressed through multiple expansions and that further growth could be needed in the corridor.
Tennessee Pipeline Open Season Draws Strong Interest
Kinder Morgan also reported favorable results from the non-binding open season for its Tennessee Gas Pipeline 219 South project. The project was marketed for just over 500 million cubic feet per day of capacity to move gas from Pennsylvania toward Tennessee.
Michels said the results were “very strong and positive,” although the company still needs to secure firm shipper commitments. The project could support power-generation demand along the route, he said.
The company has discussed a potentially larger Tennessee Gas Pipeline expansion that could move Appalachian gas into the Southeast. Michels declined to identify a specific upper limit for the project, citing customer rate considerations, but said it could potentially be multiple times the 500 million cubic feet-per-day capacity discussed in the open season.
For now, Kinder Morgan is prioritizing the Southeast Connector over a potential Mississippi Crossing expansion, though Michels said the company continues to hold early-stage discussions with possible counterparties for that project.
Funding Capacity and Other Growth Markets
Michels said Kinder Morgan can fund roughly $3 billion to $3.5 billion annually in growth capital from cash flow from operations. The company’s debt-to-EBITDA ratio was 3.6 times, compared with a long-term target range of 3.5 to 4.5 times. Using capacity up to the midpoint of that range could provide another $3 billion to $3.5 billion of funding capacity, he said.
That gives the company potential annual growth-project capacity of $6 billion to $7 billion, according to Michels. He said Kinder Morgan does not expect to need external capital for its planned growth investments unless a significant acquisition coincides with periods of heavy project funding.
In Texas, Kinder Morgan is seeing demand tied to power generation, LNG and supply needs for multiple markets. Michels highlighted the potential Permian Link project on the Natural Gas Pipeline Company of America system, which could serve the Texas Panhandle, parts of New Mexico and potentially Oklahoma. He said customer negotiations are progressing well, though the project is not in the formal backlog.
Michels said the project is positioned as a demand-driven development rather than a supply-push pipeline and benefits from NGPL’s storage assets.
Outperformance Includes One-Time Factors
Kinder Morgan’s operating performance this year has benefited from approximately $225 million of non-recurring items, Michels said. Those included Winter Storm Fern and extended cold weather in the Northeast, FERC-related retroactive billing relief, a terminal contract buyout and the widening of the Waha basis spread.
Higher commodity prices also contributed. Michels said the company budgeted for oil at $60 per barrel, while year-to-date prices had averaged above $80 per barrel, creating an estimated $100 million benefit. He cited commodity-price effects related to the Iran war.
While the company does not expect to budget for all of those gains next year, Michels said underlying market conditions should continue to support margins in Kinder Morgan’s Texas intrastate business, higher-rate recontracting on interstate pipelines, greater volumes and additional customer services. He also cited strong CO2 volumes, although he said the durability of that performance into next year was less certain.
About Kinder Morgan (NYSE:KMI)
Kinder Morgan, Inc (NYSE: KMI) is an energy infrastructure company that owns and operates pipelines, terminals, and storage facilities. Its assets primarily transport and store natural gas, crude oil, refined petroleum products, and carbon dioxide, supporting energy producers, utilities, refiners, industrial companies, and other customers.
The company’s natural gas business includes interstate and intrastate pipelines, gathering and processing systems, and underground storage facilities.
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