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Buying may be better than building to grow US gas footprint: Kinder Morgan

Highlights

Converting crude pipe to gas service also option

Energy transition a focus for fossil-fuel transporter

Houston — Kinder Morgan expects more natural gas utilities to shed pipelines like Dominion Energy did last year, and it may scoop up some of those assets if the price is right, executives said Jan. 27 during the company's annual investor day presentation.

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The Houston-based company, which moves more than a third of the gas consumed in the US, also will look at whether any of its existing crude pipelines are underutilized and could be converted to handle gas instead, the executives said.

And, they said, the company will talk to customers to gauge their appetite for supporting more energy storage.

The potential moves reflect Kinder Morgan's desire to grow while it also continues to cut back on spending on new infrastructure projects and is mindful of the possibility of a tougher regularly environment under the Biden administration. The global energy transition to greater use of renewable fuels also is a factor.

"It's going to get harder and harder to build new pipeline," said Tom Martin, president of Kinder Morgan's natural gas pipelines segment.

Kinder Morgan 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.

Dominion, traditionally a power and gas supplier, had expanded into the midstream sector with the acquisition of Questar Pipeline, the construction of the Cove Point LNG export facility in Maryland, and the proposal to build the Atlantic Coast Pipeline to deliver more Appalachian Basin gas to downstream utility customers.

Then, in July 2020, Dominion decided to sell substantially all of its gas pipeline and storage assets to Warren Buffett's Berkshire Hathaway. The deal included Berkshire Hathaway becoming the operator at Cove Point. Separately, Dominion scrapped the $8 billion Atlantic Coast Pipeline, amid ballooning costs and fierce legal opposition from environmental groups.

Kinder Morgan sees other utilities that own midstream assets following Dominion's move to divest gas pipelines and related infrastructure.

"I think there is the possibility that more come to market," President Kimberly Dang said. "It's something that we are going to look at. And as we've said, we think the natural gas business has a very long runway. And you also have the potential that you can handle the other products on the pipelines, renewable, natural gas and hydrogen. And so we think there's a bright future there. And so whether it's storage or natural gas pipelines, those are obviously something to consider."

If Kinder Morgan can get something "at the right price," Dang said, "then it's something we're absolutely willing to pursue."

Kinder Morgan's M&A appetite also could extend to the renewables market, though assets there are "very expensive" because of a frenzy of activity, Dang said. That makes it "unlikely" Kinder Morgan would find a good opportunity.

"But we will look," she said. "We will not let that stone go unturned."

In the prolific Permian Basin in West Texas, Kinder Morgan operates two gas pipelines that move supplies to Gulf Coast demand markets. It had been considering building a third Permian gas pipeline, but has talked very little about the idea over the last year.

Crude conversion

Rather than build, Martin said Kinder Morgan could convert a crude pipeline to gas service, bringing additional incremental capacity to the market. He did not specify a pipeline.

"Whether we or others have underutilized assets, it brings some best economics to bear," Martin said. "It certainly would be something we'd look at."

Kinder Morgan operates about 3,100 miles of crude pipelines. Among other assets, it owns the Wink Pipeline, a 450-mile Texas intrastate crude system that moves 145,000 b/d from West Texas.

Building another Permian gas pipeline would be challenging, Martin said.

"I think we'll be very cautious, very prudent in our approach there," he said. "We certainly will want to make sure we get appropriate returns for the risk involved in it. I suspect it will be a longer duration project for construction and in-service than what we have done on the other projects. And, I think to the question that was asked earlier, certainly, will lend itself to looking at, are there pipes that are underutilized and other sources or other uses that may make sense to not have it be a full greenfield pipeline project? I think that will help improve the execution of a project like that."

LNG exports

With growing US LNG exports, feedgas deliveries to liquefaction terminals have surged and are expected to continue their rise through 2026.

Kinder Morgan's network of pipelines and storage assets allow it to feed that demand, as well as serve as a bridge to the energy transition.

"Suffice it to say that we strongly believe our assets will play a major role in that transition," executive Chairman Richard Kinder said during the investor presentation.