Kinder Morgan posts financial loss as virus-related demand drop hits pipeline volumes

Kinder Morgan reported a loss in the second quarter versus a year-ago profit as demand destruction due to the coronavirus pandemic significantly reduced throughput on some of its pipelines.

The company expects the sharp declines in crude oil and natural gas production along with reduced demand for refined products to continue in the near term. Feedgas deliveries via its pipelines to liquefaction terminals were down compared with the first quarter amid cancellations of cargoes scheduled to be loaded at the facilities.

Kinder Morgan has cut its expansion capital budget for this year by $660 million, slightly less than the $700 million reduction that it previously estimated. Major projects are continuing and remain on schedule, including Permian Highway Pipeline, the company said.

"The question is what should our strategy be in the face of these black swan events?" executive Chairman Richard Kinder said during a conference call with investors to discuss the results.

The company must live within its cash flow, which means fewer viable expansion projects and reduced growth potential in the near term from what the company has traditionally expected, Kinder said.

"While we would never rule out a potential M&A transaction, we will not undertake such a transaction to the detriment of our balance sheet," Kinder said.

The virus impact first peaked in the US during the April-June period, with feedgas deliveries to Gulf Coast liquefaction terminals falling dramatically amid widespread cargo cancellations. That has meant lower volumes on some pipelines, and has trickled upstream to shale producers.

Kinder Morgan, which in addition to moving more than one-third of the gas consumed in the US also relies on fixed fees from throughput of crude and refined products on its common carrier pipelines, kicked off the earnings reporting season for the US midstream sector. Its performance and outlook will be a barometer for the rest of the sector as its peers report their latest results in the days and weeks ahead. Kinder Morgan operates the Gulf Coast Express gas pipeline in the Permian, in addition to building Permian Highway Pipeline, which is slated to start up in early 2021.

For the April-June quarter, Kinder Morgan reported a loss of $637 million, or 28 cents a share, compared with a profit of $518 million, or 23 cents a share, in the same period a year ago. Revenue fell 20% to $2.56 billion from $3.21 billion in the second quarter of 2019.

The company's natural gas pipelines segment saw lower contributions from multiple gathering and processing assets due to sharply reduced natural gas production, from Tennessee Gas Pipeline Company due to mild weather in the US Northeast and the impact of a Federal Energy Regulatory Commission rate settlement, and from the sale of the Cochin Pipeline in December 2019.

The slide was partially offset by greater contributions from the Elba Liquefaction facility in Georgia and Gulf Coast Express in Texas, Kinder Morgan said.

LNG market

On July 20, Kinder Morgan said it was finalizing an investigation into the cause of a compressor fire that has kept one of the liquefaction units at Elba offline for more than two months. The operator does not have an estimated timeline for returning Unit 2 to service.

Six units at the facility near Savannah are online, while three more are under construction -- units 7, 9 and 10 – and are expected to be in service before the end of the summer. The smallest of the six major US liquefaction terminals has a 20-year offtake agreement with Shell covering its expected 2.5 million mt/year capacity at full build-out.

Global gas prices finally found a bottom over the last 30 days but are likely to remain near the current low point through the end of the third quarter as high storage stocks and a lack of demand growth remain major concerns until seasonal demand begins to perk up in mid-October, Platts Analytics data show.