Kinder Morgan spending cuts stem impact of US gas volume declines in Q4 2020

Houston — Kinder Morgan suffered declines across its business but only a slight drop in profit for the last three months of 2020 thanks to sharp reductions in spending on operations and growth projects, the North American natural gas pipeline operator said Jan. 20.

The Houston-based company, which moves more than a third of the gas consumed in the US, believes volumes will return to more normal levels as the rollout of the coronavirus vaccine continues in the months ahead. Surging US LNG exports and the recent commercial in-service of its 2.1 Bcf/d Permian Highway Pipeline also are promising signs.

Kinder Morgan projected full-year 2021 earnings to be about the same as they were for 2019, before the pandemic.

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"The pandemic and the downturn in US energy markets impacted us for sure, but we were able to maintain our priorities and principles," CEO Steve Kean said during a conference call with investors.

Natural gas transport volumes were down 2% in the October-December quarter compared with the fourth quarter of 2019, with notable declines on Colorado Interstate Gas Pipeline and Wyoming Interstate Pipeline due to production declines in the Rockies basin, and on El Paso Natural Gas due to increases in transportation alternatives for Permian basin production.

Those declines were partially offset, Kinder Morgan said, by increased volumes on the Texas Intrastate systems due primarily to increased Gulf Coast contract activity largely serving LNG and industrial markets; on Tennessee Gas Pipeline driven by increased LNG and power plant deliveries sourced largely from the Appalachian region; and on Elba Express due to increased deliveries to the company's Elba Liquefaction terminal in Georgia.

Natural gas gathering volumes were down 20% from the fourth quarter of 2019 across nearly all Kinder Morgan's systems, most notably on the KinderHawk and Eagle Ford systems, the company said.

Kinder Morgan partly blamed lower energy demand as a result of the pandemic and lower commodity prices for declines in financial contributions across its business segments. It also cited the impact of the sale of Canadian assets and the US portion of the Cochin Pipeline.

For the three months ended Dec. 31, Kinder Morgan recorded net income of $607 million, or 27 cents a share, compared with a profit of $610 million, or 27 cents a share, in the same period of 2019. Fourth-quarter revenue slid 7% to $3.12 billion from $3.35 billion in the year-ago period.

Demand signals

Looking ahead, Kinder Morgan projected full-year 2021 earnings of $2.1 billion. That would be essentially flat with the $2.19 billion in profit for 2019. Full-year 2020 profit, amid the pandemic, totaled $119 million. More details on Kinder Morgan's outlook are expected to be discussed during a virtual meeting with investors on Jan. 27.

The company previously said it would cut growth spending again in 2021 amid the slow recovery in volumes following the worst impacts of the pandemic. It plans to invest $800 million in expansion projects and contributions to joint ventures this year. That compares with about $1.7 billion budgeted for 2020, which was reduced by $680 million from what was projected in late 2019.

Many companies in the midstream sector are being cautious with spending on growth projects. While market dynamics have remained uncertain due to uneven recovery in various industries, robust LNG feedgas deliveries and exports to Mexico, in tandem with stronger power burns, are a bullish sign. That has helped to offset weak res/comm gas demand from a lack of cold weather winter-to-date, according to S&P Global Platts Analytics data.