Kinder Morgan Eyes Another Permian Gas Pipeline

HOUSTON (P&GJ) - Executives at cash-flush Kinder Morgan, which already has two major Permian Basin-Gulf Coast natural gas pipelines totaling 4.1 Bcf/d under construction, are considering a third pipeline in response to ever-growing demand in the region.

"We're doing everything we can for our customers there, both with our existing infrastructure as well as prosecuting our projects just as quickly as we can," Kinder Morgan President Steve Kean said during a conference call discussion of the company's 15% year-over-year increase in first-quarter net earnings to $556 million.

"Demand to get out of the Permian continues to grow," Kean said, "And the desire to be able to unlock the value that's in oil and the NGLs, as well as natural gas, continues to put pressure on the need for additional takeaway capacity."

Kinder Morgan executives said construction is continuing on schedule for its $1.75 billion Gulf Coast Express (GCX) and $2 billion Permian Highway (PHP) pipelines, each with a planned capacity of approximately 2 Bcf/day. 

Pipeline Construction on Schedule

"Our execution and our economics of these projects both look good, and we're actively managing our risks and opportunities on both," Kean said. "These projects show us taking advantage of a very positive situation (with) large demand growth in Texas, and we can bridge the two and connect to our premier Texas intrastate pipeline network and stay entirely within the State of Texas, which facilitates permitting and commercial flexibility."

GCX, a joint venture with DCP Midstream and Targa Resources, is fully subscribed under long-term, binding agreements, and is scheduled to begin service from Waha, Texas, to Agua Dulce, Texas, in October of this year. The project includes a lateral into the Midland Basin, consisting of approximately 50 miles of 36-inch pipeline and associated compression to serve gas processing facilities owned by Targa, as well as facilities owned jointly by Targa and Pioneer Natural Resources.

The last 40 miles of the Midland lateral was placed in service in early April, and construction is continuing on the 42-inch mainline and compressor stations associated with GCX. Kinder Morgan owns a 35% interest in the project and will operate the pipeline.

PHP, whose project partners include EagleClaw Midstream and Apache's Altus Midstream, is designed to transport up to 2.1 Bcf/d of natural gas through 430 miles of 42-inch pipeline from the Waha area to the Gulf Coast and Mexico markets. Its original 2.0 Bcf/d of capacity is fully subscribed, and a 0.1 Bcf capacity expansion approved in late 2018 is still being marketed. 

Kinder Morgan, EagleClaw and Altus will each hold a 26.67 percent ownership interest in the project. Kinder Morgan is constructing and will operate the pipeline when it enters service  currently scheduled for October 2020.

Kinder Morgan projects that 70% of natural gas transportation demand growth between now and 2030 will be in Louisiana and Texas, largely due to a growing LNG market.

Executives did not share any specifics related to a potential third Permian Basin gas pipeline. "There are some discussions ongoing," Kean said, adding, "There's nothing to announce."

Elba Nears Service

The company also said its Elba Liquefaction project near Savannah, Georgia, is on schedule to be placed in service by May 1.  Elba is first of 10 liquefaction units that Kinder Morgan plans to start up at a rate of one per month.

The federally approved project at the existing Southern LNG Company facility will have a total liquefaction capacity of approximately 2.5 million tons per year of LNG, equivalent to approximately 350 MMcf/d of natural gas. The project is supported by a 20-year contract with Shell.

Elba Liquefaction Company, L.L.C., Kinder Morgan's joint venture with EIG Global Energy Partners as a 49 percent partner, will own the liquefaction units and other ancillary equipment. Certain other facilities associated with the project are 100% owned by Kinder Morgan.

Strong Cash Flow

Also during the conference call on Wednesday, Executive Chairman Rich Kinder discussed the board's decision to increase Kinder Morgan's dividend by 25% and the financial strength underlying it.

"Central to our ability to do this is the strong and growing cash flow our assets are generating," Kinder said, noting the company's use of cash to pay off more than $8 billion of debt and credit upgrade from both S&P and Moody's.

"Beyond that, we are now focusing on using our cash to fund our expansion CapEx without the need to access the equity market to pay our increasing dividends and to repurchase stock when appropriate," he said.

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