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Summary

  • The EIA recently published its 2014 Annual Energy Outlook report. The report details a vast increase in natural gas production and consumption.
  • Kinder Morgan stands to benefit greatly regarding this development. The company’s already enormous natural gas pipeline footprint will facilitate further expansion in all regions.
  • This will be a four part series due to the amount of growth and expansion in all four Kinder Morgan regions.
  • In the following article we will drill down on the company’s Eastern region expansion plans and growth prospects.

Overview

The EIA recently published its 2014 Annual Energy Outlook report. The report details a vast increase in natural gas production and consumption. Kinder Morgan (NYSE:KMI), (NYSE:KMP) stands to benefit greatly regarding this development. The company's already enormous natural gas pipeline footprint will facilitate further expansion in all regions. In the following sections we will drill down on the company's Eastern region expansion plans and growth prospects.

EIA Annual Energy Outlook 2014 - Natural Gas

The EIA puts out a report each year regarding the organization's outlook for the energy industry. The following excerpt from the report details the three main takeaways from the natural gas section of the report as I see them. The report gives much more information regarding the state of affairs for natural gas.

Three major takeaways

1) Shale gas provides the largest source of growth in U.S. natural gas supply.

A 56% increase is expected in total natural gas production from 2012 to 2040 resulting primarily from increased development of shale gas, tight gas, and off shore natural gas resources.

(Source: EIA.gov)

Shale gas production is the largest contributor, growing by more than 10 Tcf, from 9.7 Tcf in 2012 to 19.8 Tcf in 2040.

2) Natural gas production is currently growing faster than use. The EIA predicts the U.S. will become a net exporter of natural gas before 2020.

The EIA predicts natural gas production will grow by an average rate of 1.6% per year from 2012 to 2040. This is more than double the 0.8% annual growth rate of total U.S. consumption over the same period.

(Source: EIA.gov)

The growth in production is met by increasing foreign demand. Pipelines will increase to facilitate certain exports. The United States becomes a net exporter of natural gas before 2020. Growing LNG exports also support higher natural gas prices.

3) The industrial and electric power sectors will be the key drivers of growth in U.S. natural gas consumption.

The EIA predicts U.S. total natural gas consumption will grow from 25.6 trillion cubic feet (Tcf) in 2012 to 31.6 Tcf in 2040.

(Source: EIA.gov)

Natural gas use increases in all of the end-use sectors with the exception of residential. Natural gas use for residential space heating declines as a result of population shifts to warmer regions of the country and improvements in appliance efficiency.

My Take

There you have it folks. This is a long-term secular growth story just on the cusp of being realized. Kinder Morgan is the leading provider of natural gas pipeline transportation at the moment. With the company's unparalleled footprint already in place, countless expansion places are currently underway with countless more in backlog. In the following section I will give you a quick overview of the infrastructure in total and then drill down on the Eastern region's current status and prospects for growth specifically.

Kinder Morgan North American Natural Gas Pipeline Infrastructure Map

(click to enlarge)

(Source: KinderMorgan.com)

As you can see Kinder Morgan already has an expansive and intricate natural gas pipeline network across North America. The company breaks it down into four major regions; East, West, Central, and Midstream.

(click to enlarge)

(Source: KinderMorgan.com)

There is so too much expansion in Kinder Morgan's natural gas pipeline footprint going on I can't cover it all in one article. This article will focus on the Eastern region's expansion projects. I will then follow up on the three other regions in subsequent articles. The following is a breakdown of the current expansion plans underway and the backlog for the Eastern region.

Eastern region detailed review

The following information was provided by Tom Marlin, the president of Kinder Morgan's Natural Gas Pipeline Group. The information details Kinder Morgan's Natural Gas Pipeline segment's enormous growth underway and mounting backlog.

Eastern Region Natural Gas Pipeline current asset map

(click to enlarge)

(Source: KinderMorgan.com)

Growth drivers breakdown

The current asset footprint provides a base for serving growing and supply-constrained markets from both traditional and developing supply regions.

TGP Review

TGP uniquely positioned in growing Marcellus and Utica shale plays to provide region-wide access to both Gulf Coast and Northeast markets.

TGP - Utica Backhaul Transportation

The TGP Utica Backhaul Transportation capacity is 400 MDth/d Long-term 100 MDth/d Short-term. The capital expenditure for the project is $155.6 million. According to company records it was estimated to be placed in service in April of this year. The scope of the project was pipe modifications at eight compressor stations. The commercial benefit of the project is increased southbound capacity from Utica Shale to Gulf Coast markets.

TGP - Rose Lake Project

(click to enlarge)

The TGP Rose Lake project's capacity is 230 MDth/d. The capital expenditure for the project is $83 million. According to company records, construction was estimated to begin in April of this year. Project scope:

  • Station 315 - 12,600 HP new compression
  • Station 317 - Miscellaneous project-related work
  • Station 319 - 3,700 new HP; 4,500 replacement HP.

The commercial benefit of the project is to expand TGP's capacity to transport Marcellus Shale production to Canada and New England.

TGP - Niagara Expansion

The TGP Niagara Expansion project's capacity is 158 MDth/d. The capital expenditure for the project is $26 million. According to company records, the current status of the expansion is shipper PA and NFG lease agreements have been executed and pre-construction activities are underway. Project scope:

  • 3.1 miles of 30-inch pipe looping
  • Station 229 meter facilities
  • Lease on National Fuel Gas (140 MDth/d)

The commercial benefit of the expansion is to provide additional markets for Marcellus gas and supply diversification for the eastern Canadian markets as well.

TGP - Connecticut Expansion Project

The TGP Connecticut Expansion project's capacity is 72.1 MDth/d. The capital expenditure for the project is $76.9 million. According to company records the project is expected to be in service by November of 2016. Project scope:

  • 13.3 miles of pipeline loop
  • Acquisition of Thompsonville Lateral

The commercial benefit of the expansion is to provide additional capacity to serve the New England market.

TGP - Cameron LNG Project

The TGP Cameron LNG project's capacity is 900 MDth/d. The capital expenditure for the project is $138.4 million. According to company records, the project is expected to be in service by the fourth quarter of 2017. Project scope:

  • Compressor station modifications to accommodate bi-directional flow
  • 18,000 HP of new compression
  • New pipeline laterals for enhanced supply access to the Perryville Hub.

The commercial benefit of the expansion is to aggregate supply from multiple sources for LNG export.

SNG / Elba Express Expansion

The SNG / Elba Express Expansion project's capacity is 333 MDth/d. The capital expenditure for the project is $168 million. According to company records, the project is expected to be in service by June of 2016. The project scope entails compression on SNG and EEC and an additional pipeline and facility upgrades.

The commercial benefits of the expansion are:

  • Additional access to Marcellus/Utica shale gas for existing and new SNG customers.
  • Seamless transportation of natural gas on the SNG from supply to market.
  • Increased access to secondary receipt points on SNG system.
  • Replacement of supply for LNG-dependent markets
  • The ability to offer incremental supply for new demand

Liquefaction at Elba Island

The Liquefaction at Elba Island project's capacity is 350 MDth/d for phase 1 and 2. The capital expenditure for the project detailed in the table below.

According to company records, phase 1 of the project is expected to be in service by the fourth quarter of 2016 while phase 2 is projected to be in service by 2018 at the latest.

The project scope entails:

  • ELC: Facilities for liquefaction
  • SLNG: Ship loading facilities; boil-off gas compression
  • EEC: Compression to reverse flow from Transco

The commercial benefits of the expansion are:

  • Not contingent on further DOE approval
  • Gas supply via EEC for U.S. production from various supply regions

Conclusion

The immense growth of North American natural gas production coupled with the increase in demand from around the globe will keep Kinder Morgan very busy for years to come. This secular growth story should provide investors with steady and predictable income streams for the foreseeable future. When you make an investment such as this you want to have visibility as to the future prospects for organic growth. I can think of none better than the enormous growth projected for the pipeline industry in general and Kinder Morgan specifically. Be on the lookout for my next piece detailing the Western region's current status. Kinder Morgan is a buy here. Nevertheless, always layer in to positions over time to reduce risk.

Source: Kinder Morgan: Too Hot To Handle?