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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 is the final installment of a four-part series regarding the immense expansion underway regarding Kinder Morgan's natural gas pipeline segment.
  • In the following article, we will drill down on the company's Midstream region expansion plans.

(See part one here, part two here, and part three here)

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 Midstream region expansion plans and growth prospects.

Kinder Morgan North American Natural Gas Pipeline Infrastructure

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. This article will focus on the Midstream region's expansion projects. The following is a breakdown of the current expansion plans underway and the backlog for the Midstream region.

Midstream 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.

Midstream Region Natural Gas Pipeline current asset map

(click to enlarge)

(Source: KinderMorgan.com)

Midstream Expansion Backlog Summary

(click to enlarge)

(Source: KinderMorgan.com)

Mier Monterrey Expansion

The Mier Monterrey Expansion project's capacity is 215 MDth/d. The capital expenditure for the project is $126.3 million. The compressor station portion of the expansion plan is scheduled to come on-line in September 2014, while the conditioning plant is scheduled for January 2015.

Project Scope:

  • Compressor station (U.S.)
  • Conditioning plant (U.S.)
  • Webb 14-inch pipe replacement (U.S.)
  • Leased compression (Mexico)

The commercial benefits of the project are increased deliverability to Mexico of U.S. supply.

Calpine Magic Valley

The Calpine Magic Valley project's capacity is 90 MDth/d. The capital expenditure for the project is $26.4 million. The compressor station was scheduled to come on-line in March 2014. The project scope includes 23 miles of 16-inch pipe, compression and meter.

Current Status:

  • Executed 90 MDth/d transport agreement and storage agreement in 1Q 2013
  • 16-inch lateral and meter placed in service in 4Q 2013
  • Compression: under construction

The commercial benefits of the project are to provide additional capacity to serve power plants in Deep South Texas.

DK Expansion (incl. TXP3)

The DK expansion (incl. TXP3) project's capacity is 400 MDth/d. The capital expenditure for the project is $250.1 million. The pipeline portion of the expansion plan was scheduled to come on-line in June 2014, while the cryogenic plant is scheduled for July 2014.

Project Scope:

  • 400 MMcf/d cryogenic plant
  • 8 miles of 24-inch pipe
  • 6,720 HP compression

The commercial benefits of the project are expanded gathering and processing capacity in the Eagle Ford Shale, and substantial capacity increase by combining the Copano and Intrastate networks.

Eagle Ford Fractionation Outlet

The Eagle Ford Fractionation Outlet project's capacity is 30 MBbls/d. The capital expenditure for the project is $20 million. Definitive agreements were executed in January 2014. The expansion plan is scheduled to come on-line in the third quarter of 2015. The project scope includes 26 miles of 12-inch pipeline from Markham to an NGL fractionator near Sweeny, TX. The commercial benefits of the project are as follows:

  • Provide economic outlet for NGLs produced from expanded Houston Central Plant.
  • Provide up to 20 MBbls/d of fractionation capacity effective July 2014.

Eaglebine Project

The Eaglebine project's capacity is 45 MMcf/d. The capital expenditure for the project is $24.3 million. Kinder is currently in negotiations with producers. The expansion plan is scheduled to be placed in service by the third quarter of 2014.

Project Scope:

  • Convert 50 miles of existing pipeline for rich gas service
  • 100 GPM amine treater and dehydration unit
  • 3 gas chill units (15 MMcf/d each)
  • 6.5 miles of natural gas pipelines
  • 4-mile Y-grade pipeline

The commercial benefit of the project is to provide an interim solution for producers to test acreage prior to building a cryogenic plant.

Summary

The Midstream region's large asset footprint provides numerous opportunities for expansion and capital investment. The region's asset footprint is strategically located to serve a tremendous amount of growing liquids and oil production in the region from several different unconventional shale plays.

Conclusion

This is a long-term secular growth story, only nowhere near fruition. Kinder Morgan is the leading provider of natural gas pipeline transportation. 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. These steady predictable streams of cash flow will underpin dividend yield growth for the foreseeable future.

Final Thought

When you make an investment such as this, you want to have visibility as to the future prospects for organic growth to ensure you have steady and stable cash flow during your retirement years. I can think of none better than the enormous growth projected for the pipeline industry in general, and Kinder Morgan specifically. Kinder Morgan is a buy here. Nevertheless, you should always layer into your position over time to reduce risk.

Source: Kinder Morgan: Hitting The Shale Sweet Spot