Kinder Morgan sees huge growth in power sector gas demand, announces 1.2 Bcf/d expansion

Kinder Morgan executives struck a bullish tone on power sector gas demand July 17 as they also announced a successful open season for a 1.2 Bcf/d expansion of the Southern Natural Gas pipeline system.

The proposed South System Expansion 4 Project would boost capacity on Southern Natural's South line and will "help to meet the growing power demand and local distribution company demand in the southeastern markets," CEO Kim Dang said.

Dang pushed back against forecasts for power sector gas demand to decline in the second half of the decade. "We simply do not believe that will be the case, given the anticipated power-related growth in gas demand associated with AI and data centers, coal conversions, and new capacity to shore up reserve margins and back-up renewables."

In addition to South System 4, the company is in commercial discussions on more than 5 Bcf/d of opportunities related to power demand, including 1.6 Bcf/d related to data center demand, Dang said. "Certainly, not all of these projects will come to fruition, but that gives you a sense of the activity levels we're seeing."

"The anecdotal evidence over the last few months has been jaw dropping," Chairman Rich Kinder said in regard to power sector gas demand. In particular, he cited Electric Reliability Council of Texas forecasts that it would need 152 GW of power generation by 2030. "That's a 78% increase of 2023's peak power demand of about 85 GW." Kinder also pointed to a recent story that the Texas Energy Fund could support 20 GW or more in gas-fired power generation.

Kinder Morgan aims to begin service on the South System 4 project in 2028, "with some volumes trickling in the year after," said Sital Mody, president of natural gas pipelines. A filling with the US Federal Energy Regulatory Commission is expected "sometime next summer," Mody said.

The company has agreed 20-year take-or-pay contracts with credit-worthy shippers for the expansion, Dang said.

Permian Basin egress

Kinder Morgan has yet to take a final investment decision on the a brownfield expansion of Gulf Coast Express or on a greenfield long-haul pipe out of the Permian. "We are still in discussions with our customers on the broader Permian egress opportunity," Mody said.

Market participants expect the Permian to need a new pipeline by 2026 to facilitate rising gas production. Responding to an analyst's question whether the company would consider a joint solution for the Permian, Mody said "we are open to all sorts of structures on that front and are willing to consider what's best for the basin."

Kinder Morgan reported a net income of $575 million in the second quarter, down from $586 million in Q2 2023.