January 27, 2023

Nearly a year after receiving federal approval, Kinder Morgan Inc. has approved the 2-Bcf/d Evangeline Pass pipeline project to feed Venture Global LNG Inc.’s Plaquemines LNG export facility.

In a call with investors to discuss Q4 2022 earnings earlier this month, CEO Steven Kean said Kinder is moving forward on the $678 million Evangeline Pass project after receiving loan support from Venture Global to to continue with the construction.

The two-phase project includes modifications and improvements to the Tennessee Gas Pipeline and Southern Natural Gas Co. systems in Mississippi and Louisiana.

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Pipeline operating data would be reconciled with Venture Global LNG data for the LNG export terminal at Plaquemines. Venture Global estimates that half of the capacity for the first phase of the project – 13.33 million tons/year – could come online in 2024, followed by the second half by the end of 2025.

Kean said the proximity of Kinder’s midstream network throughout Texas and Louisiana gives the Houston-based company a “major advantage” in the LNG sector. Specifically, he said Kinder’s access to multiple production basins, along with reservoirs and salt storage, puts it in a “great position to participate in the LNG export story.”

“We were talking about about 50% of our market share” when it comes to shipping natural gas to LNG plants, Kean said. “That’s where we are today. We definitely believe our volumes will continue to grow, but it’s hard to say if we’ll hit or surpass 50% in the future. But I feel really good about our position to be a part of it.”

On that front, construction is underway on the 550 MMcf/d extension of the Permian Highway Pipeline (PHP), which is scheduled to ramp up by November. However, management said there was a “potential opportunity” for earlier entry into service. Additional compression would shift shipments from the Waha area of ​​West Texas to mainline routes to Gulf Coast markets.

Kinder began commercial talks in 2022 to expand another gas pipeline in the Permian Basin, the Gulf Coast Express. An open season “hasn’t been very active,” Kean said, “although with lower prices there might be some opportunities now.”

Kean said “fuel costs have been a bit of a headwind for us on this expansion project.” With gas prices in the sub-$4.00 range, “this could present another opportunity to act.”

Based on discussions with customers, the need for additional capacity from the Permian could be in late 2026 or early 2027, according to Kean. “The market as a whole still needs this capacity,” he said. However, the task is to determine when and where the volumes are needed.

Heavy amounts of natural gas

President Kim Dang said natural gas transportation volumes continued to increase in the fourth quarter of 2022.

The 4% annual increase was driven by stronger demand from power generation and local distribution companies as a result of weather and coal shutdowns, partially offset by lower LNG volumes from Freeport LNG. Freeport has been closed since last June. Softer exports to Mexico also weighed on transport volumes, Dang said.

Natural gas production volumes increased 6% in Q4 2022, driven by Haynesville Shale volumes increasing 44% year over year.

Although volumes at the KinderHawk collection system in Haynesville were sequentially flat due to capacity constraints, management expects “a nice increase heading into 2023.” Kean said some of the capital would be aimed at removing bottlenecks in the collection system, but management also sees “some nice interstate rate hike and exploitation opportunities going forward.”

Permian carbon deposition

Kinder’s Energy Transition Ventures business has targeted the Permian for a carbon capture project that would be one of several other ventures. Kinder has entered into a term sheet with Red Cedar Gathering Co. to provide transportation on Kinder’s carbon dioxide (CO2) pipelines and cap emissions at an existing Class II injection well.

Red Cedar also has a project in progress to capture up to 400,000 tons/year of CO2 from two natural gas processing plants in southern Colorado. It would deliver the captured CO2 to Kinder’s Cortez pipeline in New Mexico. Red Cedar is a joint venture between the Southern Ute Indian Tribe Growth Fund (51%) and Kinder (49%).

Commissioning of the Twin Bridges landfill is scheduled to begin by the end of March while construction continues at the Prairie View and Liberty landfills. The three renewable natural gas (RNG) plants were part of the assets acquired from Kinetrex Energy in 2021. The sites are scheduled to go into operation before the end of this year.

Kinder also begins construction this month to convert Autumn Hills, one of seven sites that are part of the North American Natural Resources Inc. acquisition, into an RNG facility.

Management reorganization

Meanwhile, Kean is scheduled to retire on August 1, but he would remain on the board. Dang was tapped as CEO. Kean, who has been CEO for eight years, said he looks forward to “having the flexibility to work in other areas that interest me in the future.” He said “the best is yet to come” for the midstream company and expressed his support for Dang.

Natural Gas Group president Tom Martin would become president of the company in August. Midstream Gas Group President Sital Mody is scheduled to succeed Martin as President of the Natural Gas Group in February.

For Q4 2022, net income was $670 million (30 cents/share) compared to $637 million (28 cents) for Q4 2021. Distributable cash flow (DCF) was $1.22 billion -dollars, compared to $1.09 billion a year earlier.

For 2022, net income was $2.55 billion ($1.12/share), compared to $1.78 billion (78 cents) in 2021. DCF was $4.970 billion, a Down 9% from $5.46 billion in 2021.

In 2023, Kinder management expects net income of $2.5 billion ($1.12 per share). Dividends are targeted at $1.13/share, a 2% increase over the dividends declared for 2022. The company also has plans to generate $4.8 billion ($2.13/share) of disposable cash flow (DCF) in 2023.

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