Pipeline operator Kinder Morgan Inc. (KMI) is moving ahead with a major natural gas pipeline expansion to serve growing demand from the electric power sector in the Southeast.
KMI during the quarter completed an open season for the proposed $3 billion South System 4 Expansion on the Southern Natural Gas Co. LLC pipeline system, securing 20-year take or pay contracts with creditworthy shippers, according to CEO Kim Dang. The project, which is targeted for in-service in late 2028, would increase capacity by 1.2 Bcf/d.
“Upon completion, this project will help to meet the growing power demand and local distribution company demand in the southeastern markets,” Dang said Wednesday on a call with investors to discuss second quarter earnings.
[In the Eye of the Storm: North American LNG project developers continue to grapple with the Biden administration's pause on non-FTA permits. Has the pause given impetus to other projects? How are Mexico LNG projects advancing? Tune in to hear from LNG industry analyst Sergio Chapa in the latest episode of NGI's Hub & Flow.]
The South System 4 expansion makes up the lion’s share of a $1.9 billion increase to KMI’s backlog at the end of the second quarter, which rose to $5.2 billion from $3.3 billion in the first quarter. KMI is in commercial discussions for more than 5 Bcf/d of incremental midstream capacity related to power demand, including 1.6 Bcf/d targeted for data centers, according to Dang.
“Certainly not all of these projects will come to fruition, but that gives you a sense of the activity level we are seeing and supports our belief that growth in natural gas between now and 2030 will be well in excess of 20 Bcf/d,” Dang said.
Dang shared the microphone with Executive Chairman Richard Kinder, who said consensus on the expected electric demand growth for artificial intelligence (AI) and data centers from power consumers, utilities and regulators has been “jaw dropping.”
Annual electricity demand growth over the last 20 years has averaged around 0.5%, according to the chairman. “Within the last 60 days, we’ve seen industry experts predict annual growth from now until 2030 at a range of 2.6%, to one projection of an amazing 4.7%.”
KMI, which transports about 40% of the natural gas consumed in the United States, expects natural gas to play an important role along with renewables and dedicated nuclear power to help the industry meet the needed 24/7 reliability.
Kinder said that in Texas alone, the Electric Reliability Council of Texas (ERCOT) has estimated the state would need 152 GW of power generation by 2030, up from last year’s estimate of 111 GW. “That is a 78% increase from 2023 peak power demand of about 85 GW,” Kinder said.
The executive noted that the Texas Energy Fund, a program that would extend low-cost loans for new natural gas-fired generating facilities, was massively oversubscribed. The requests could finance 55,908 MW of proposed dispatchable power generation projects for the state’s electric grid, according to state regulators.
“That oversubscription I think is clear evidence that the generators are projecting increased demand for natural gas-fired facilities,” Kinder said.
While it is hard to peg an exact estimate on how much more fuel would be needed to supply the surge in power generation, “we believe it to be significant and makes the future even more robust for natural gas demand overall and for our midstream industry,” Kinder said.
Volumes Up
Natural gas gathering volumes were up 10% year/year in the quarter, according to President Tom Martin. This was driven by Haynesville and Eagle Ford shale volumes, which were up 21% and 8%, respectively.
However, KMI is lowering its guidance for gathering volumes for the remainder of the year as a result of low gas prices. “Given the current gas price environment, we now expect gathering volumes to average about 6% below our 2024 plan, but still 8% over 2023,” Martin said.
NGI’s Henry Hub bidweek price averaged $1.890/MMBtu in 2Q2024, versus $2.096 in 2Q2023.
KMI views the “slight pullback in gathering volumes as temporary,” according to Martin. “The higher production volumes will be necessary to meet demand growth from LNG expected in 2025.”
KMI reported net income of $575 million (26 cents/share) in the second quarter, roughly flat with profits of $586 million (26 cents) in 2Q2023. Revenues totaled $3.57 billion, up $71 million from the second quarter of last year.
