Kinder Morgan Inc (NYSE:KMI) is the proud owner and operator of America's 11,800-mile long Tennessee Gas Pipeline. Here's how Kinder Morgan Inc is leveraging its natural gas unit to grow its distributable cash flow streams through a series of TGP system expansions.
Overview of TGP System
The Tennessee Gas Pipeline runs from the New England region down to Texas, servicing several big gas plays including the Marcellus, Utica, Eagle Ford, and Haynesville regions. Kinder also imports gas from Canada and exports gas to Mexico through the TGP system. Most of the gas flow that isn't meeting regional demand is heading south from the Marcellus/Utica plays to customers along the way and on to Texas.
With the capacity to transport 10.23 billion cubic feet of gas per day, supported by 104 Bcf of gas storage, the TGP is a big operation. Last year, the TGP generated roughly a sixth of Kinder's gas pipeline revenue of $8 billion and over a quarter of that unit's $4 billion in EBDA. Kinder owns all of the TGP system after buying it outright in 2012.
Largely due to a dip in volumes gathered and transported, Kinder Morgan's gas pipeline division saw its revenue and EBDA drop by $477 million and $93 million, respectively, in 2016 versus 2015. For the most part these revenue streams are tied to volumes and only indirectly impacted by changes in energy prices, especially for pipeline tolls.
While most of its gas assets posted minor decreases on both fronts, Kinder's TGP unit saw revenue move higher by $205 million (17% increase) as its EBDA grew by $171 million (18% increase). Having an asset like TGP can really offset weakness elsewhere. Kinder completed the second part of its South System Flexibility project in October 2016, providing some momentum into 2017.
Appalachian and New England growth
Management has laid out a series of growth projects that build off of the TGP system. There is the Broad Run Expansion, building off of another expansion completed in 2015, which seeks to increase deliveries from Appalachia (starting in West Virginia) to southern states (ending in Louisiana and Mississippi, includes Kentucky and Tennessee). Several compressor stations are being built or upgraded as part of the $452 million project, due to be completed by June 2018.
The $69 million Triad Expansion development will support a new power plant being built in Pennsylvania, with a targeted start-up date between November 2017 and June 2018. Kinder Morgan is building new gas lines adjacent to its existing pipeline through what is known as looping, so it can make use of its existing right-of-way.
A couple other projects that are servicing rising Marcellus/Utica output include the $156 million Susquehanna West development (start-up due November 2017), and the $143 million Orion development (June 2018).
What's interesting is the ability for midstream firms to connect additional customers in New England to vast gas supplies in Appalachia. There remains a great demand to build new pipeline systems to do so but regulatory headaches have gotten in the way.
Kinder Morgan's Connecticut Expansion project will add gas supplies to Massachusetts, New York, and Connecticut. This is to "meet increased demand in the U.S. Northeast for transportation capacity for natural gas," implying it is going to industrial consumers using fleets that run on compressed natural gas.
For $93 million, the expansion is adding pipeline to the TGP system through looping, making mild upgrades at a nearby compressor station, along with some other minor additions. That development is due to be completed by November 2017.
TGP and LNG
The TGP system is also going to support LNG exporting operations through the TGP Lone Star project. That will see two new compressor stations built to service the Corpus Christi LNG facility for $134 million. By mid-2018, Cheniere LNG Inc (NYSEMKT:LNG) plans to start up LNG production at the Texas facility, with the Lone Start expansion set to come online a year later (July 2019).
Before then, there is the $179 million TGP Southwest Louisiana Supply project due to be completed by February 2018. That development will add a compressor station, upgrade a compressor station, and see additional gas lines built out to expand gas supplies to southern Louisiana, primarily to support the Cameron LNG development. Commercial operations are expected to begin next year at the new LNG export facility.
Clearly the shale gas boom in America has a lot of oomph left to carry Kinder Morgan Inc higher on the back of rising volumes at an ever growing pipeline assets. Rising domestic gas demand, rising domestic supply, rising pipeline exports to Mexico, rising US LNG exports, plenty of favorable macro factors in Kinder Morgan Inc's favor. Expect strong cash flow growth through the end of the decade.
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