Kinder Morgan Partners Capitalizing On Increased Demand For Midstream Services

Apr.13.14 | About: Kinder Morgan (KMP)

Summary

The construction of the Lobos Pipeline will help the company to meet the growing demand of CO2 and enable the Permian producers to improve oil production.

KMCC (Crude and Condensate) pipeline is well positioned to maximize on the benefits from the Eagle Ford shale by expanding the pipeline.

The conversion of the Tennessee pipeline project is on track to transport NGLs from the Marcellus and Utica shales to the Gulf Coast.

KMP has identified several opportunities to expand the already huge network of pipelines and has allocated investment proceeds of about $13.5 billion.

Kinder Morgan Partners (NYSE:KMP) has been preparing to invest billions in new projects aimed at meeting the demand generated from the shale gas boom. It has identified $13.5 billion in expansion investments for the pipeline and terminals business set for the near future. These projects will be translated in to higher future cash flows that will pave the way for distribution growth.

The Lobos Pipeline is a Much Needed Project

In addition, KMP announced it would build and operate a new pipeline. The pipeline will be 213 miles long and will have an initial capacity of 300 million standard cubic feet per day. The pipeline will be transporting carbon dioxide (CO2) from the St Johns source field in Apache to the Cortez Pipeline in Torrance County. Initially, KMP plans to invest approximately $ 300 million on the construction of the pipeline. To drill wells and building field gathering treatment and compression facilities at St John's field it plans to spend an additional $700 million.

The project is expected to be completed by the end of the third quarter of 2016. Upon successful completion the pipeline will be addressing the growing demand for CO2. The company has stated, "The project will enable Permian Basin producers to increase oil production by using the product in EOR projects". The project is considered to be a key facet for sustaining long term growth. Its importance lies in on the youth of the Eagle Ford shale and the quality of oil produced. Similarly, it will also help to address the growing CO2 market while enabling the Permian Basin producers to increase oil production.

The Permian Basin is one of the oldest oil producing basins and is considered to be one of the largest EOR (enhanced oil recovery) markets in the US. Given the higher crude oil process CO2 demand has been growing in the basin but the increasing demand is not supplemented by the supply. Currently, KMP produces about 1300 million cubic feet of CO2 per day. With the investment in building new CO2 wells at the St John's project the company has taken a concrete step in filling the gap between demand and supply.

In addition to the Lobos pipeline, KMP is also pursuing other major projects that can ensure good future prospects. The company has identified expansion opportunities in the already massive network of oil and gas pipelines and storage facilities. Let's take a look at these projects.

KMCC Crude and Condensate Pipeline

In addition, the crude and condensate pipeline (KMCC) is another important pipeline that highlights growth opportunities. The KMCC pipeline originates from the Eagle Ford shale and connects various terminal facilities that provide access to petrochemical plants and refineries along the Texas Gulf Coast. Like other assets, the pipeline has been contributing to stable revenues.

Currently, the pipeline is 178 miles long with a total capacity of approximately 300 thousand barrels per day. However, going forward, the company plans to undertake expansion projects for the pipeline. That includes a $74 million expansion project aimed at expanding the pipeline further in the Eagle Ford. With the expansion KMP will be well positioned to reap huge benefits from rising production in the Eagle Ford shale that is expected to exceed 1.5 million barrels per day by 2015.

Petroleum Condensate Project

For 2014, KMP plans to spend approximately $3.6 billion. A part of the budget, $370 million, was allocated towards building a petroleum condensate processing facility comprised of two units. The facility will have a total capacity of 100,000 barrels a day. The first unit is expected to be operational in the first quarter of the current year while the second one will be completed during the first half of 2015. The facility is to be operated by fee based arrangements that will be translated into steady cash flows.

Tennessee Pipeline

The conversion of the Tennessee Gas pipeline is another important project. The conversion of the natural gas pipeline to natural gas liquids service will allow KMP to transport NGLs from the Utica and Marcellus shales to the Gulf Coast.

The project reflects the growing production of KMP as it plans to increase production up to 400,000 barrels per day from the initial capacity of 150,000 barrels per day. Therefore, it will be building 200 miles of new pipeline to transport this production.

Concluding Remarks

To further capitalize on the oil and gas boom KMP has allocated billions in planned investment. The increasing production of oil and gas triggers the demand for Midstream services and so does the demand to pipelines. In such a scenario, KMP is pursuing the right strategies by enhancing its transporting capacity through building more pipelines. Therefore, I recommend buying the stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.