Demand is surging for natural gas pipeline and storage capacity in North America, and as a purveyor of both, that’s good news for Kinder Morgan Inc. (KMI), CEO Kim Dang said Thursday.
Dang, a KMI veteran who took over the top job this year, said there are “a lot of fantastic tailwinds” for the company during a fireside chat at the Wells Fargo Midstream & Utilities Symposium.
KMI’s roughly 70,000 mile pipeline network moves some 40% of U.S. natural gas production, and the company has interest in 700 Bcf or about 15% of U.S. natural gas storage capacity.
“If you look at natural gas demand, it’s increased by 35% between 2015 and 2022,” Dang said. “Between ‘22 and 2030 it’s going to be [an] over 20% increase.”
In addition, “you’ve got a lot of volatility because of the changing nature of the demand. You don’t just have the weather variability anymore, you’ve got the variability in the renewable load, and you have some variability associated with the LNG facilities depending on what’s happening in that market.”
More volatility creates more demand for storage, balancing and park-and-loan services on the pipeline system, Dang said, “and we’ve seen significant increases in storage rates…”
She added, “We’re seeing a lot more willingness [from] utilities, industrial companies, etc., to sign up for incremental capacity, to sign up for expansions, to sign up for storage.”
For example, customers in the southeastern United States are hearing “this big sucking sound in Louisiana and saying, ‘Well that’s going to suck up a lot of the gas that I used to get, and so I need to sign up for some firm capacity.’”
Strategic Position
Dang highlighted expected demand growth driven by liquefied natural gas and Mexico exports, as well as industrial consumption domestically. “And 90%-plus of that is happening in and around the U.S. Gulf Coast, which is where we’ve got a great asset position…so I think we’ll continue to find nice opportunities to add to the backlog.”
KMI recently entered a deal to acquire NextEra Energy Partners LP’s South Texas natural gas business for $1.8 billion. The acquisition, slated to close during the first three months of 2024, would add 462 miles of natural gas pipelines with 4.9 Bcf/d of transport capacity connecting the Eagle Ford Shale with growing demand in Mexico and along the U.S. Gulf Coast.
The STX assets will “allow us to offer customers more flexibility,” and are “in the right place where we expect a huge amount of the growth in natural gas supply and demand to come,” said Dang.
Additionally, the assets offer synergies on nitrogen blending, a service that is increasingly important for the Gulf Coast market. Some of the gas coming from the Permian Basin “has high nitrogen, and that’s hard for some of the export LNG facilities to handle,” Dang said, “and so there’s an opportunity with this acquisition to provide more blending services to that market…”
In terms of expanding natural gas storage capacity, Dang said that storage rates “are sufficient to add brownfield capacity,” i.e. incremental caverns and wells at existing facilities. “I don’t think the rates are sufficient enough, in our view at least, to add brand new greenfield storage capacity.”
She noted that a 6 Bcf capacity expansion of the Markham storage facility in the Texas intrastate market is slated to enter service in early 2024, “and then we are looking at opportunities across our network to do some storage expansions beyond that.”
As for takeaway capacity out of the Permian, Dang said that a 550 MMcf/d expansion of KMI’s Permian Highway Pipeline (PHP) entered service on Dec. 1.
That project, combined with Whistler Pipeline LLC’s recently completed 500 MMcf/d expansion and the pending 2.5 Bcf/d Matterhorn Express Pipeline, mean the basin doesn’t urgently need a new greenfield pipeline, though it likely will later this decade, Dang said.
‘Unique Advantage’ In Carbon Capture
On the energy transition front, KMI’s long history as a carbon dioxide (CO2) transporter also gives it “a unique advantage” in the burgeoning carbon capture and storage (CCS) business, according to Dang.
“We’ve been taking CO2 for decades out of southwest Colorado and taking it down into the Permian Basin, injecting it into fields and producing crude with it, using that CO2 as a tertiary method of oil production,” the CEO said. “As a result of that, we know how to watch when CO2 goes into the reservoir. We can understand where it’s impacting the reservoir.”
This knowledge will be critical for CCS customers to prove to federal regulators that they are keeping the CO2 sequestered in the reservoirs that they have permitted, Dang said.
“We know how to build pipelines and we certainly know how to build CO2 pipelines, which generally need to be purpose-built. You can use some old natural gas pipelines, it’s just not as efficient – and so for any significant distance you really need purpose-built pipes.”
