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LNG export terminals to provide gas demand boost

Kinder Morgan, Sempra near startup of facilities

Houston — The US midstream natural gas sector is preparing to kick off earnings reporting season with Kinder Morgan as supply and demand, mergers and acquisitions and corporate restructurings are in focus across the industry.

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Investors will be watching closely for updates to market outlooks as billions of dollars in new pipelines, processing units and gathering systems are expected to come online later this year and early next year. Players with diversified footprints serving key shale basins and cross-border markets are expected to fare better.

The dynamics are especially timely for Kinder Morgan, which moves more than a third of the gas consumed in the US, has key infrastructure serving Mexico, is planning two new pipelines serving the prolific Permian Basin and is preparing to start up an LNG export facility in Georgia. The Houston-based company is scheduled to release first-quarter financial results on Wednesday.

Over the next several weeks and into early May, midstream investors will also hear from Dominion Energy, Enterprise Products Partners, Cheniere Energy, TransCanada, Pembina Pipeline and Energy Transfer.

For Kinder Morgan, upside potential exists if "growth projects come online sooner than anticipated and under budget, boosting investment returns and freeing up cash flow," Jefferies analyst Christopher Sighinolfi said in an April 1 note to clients. Another positive for the company would be if natural gas and NGL price realizations were higher than expected, he said.

Downside scenarios would be triggered if projects were delayed and "contract expirations and regulatory resets prove more severe than presently modeled, causing earnings and dividend growth to stall," Sighinolfi said.

Kinder Morgan said March 20 it was pushing back startup of its Elba Liquefaction terminal to April because of construction delays, and in an updated timeline suggested completion of all 10 liquefaction trains may not occur until early 2020. As of Monday, feedgas had not yet started to flow to the facility, S&P Global Platts Analytics data showed.

The terminal is among three US liquefaction facilities that are expected to begin service this year, aiding the country's efforts to be a major supplier of LNG to global destinations. Shell is supporting the Elba facility with a 20-year contract to buy LNG produced there.

The startup of Elba, Freeport LNG and Sempra Energy's Cameron LNG would double the number of major US LNG export terminals in operation. All three have faced construction or weather-related delays. Cameron LNG is preparing to begin LNG production from its first train, Sempra said in a statement Monday. The developer said that it is ramping up feedgas to the facility as part of the final commissioning step for Train 1 at the terminal in Hackberry, Louisiana, south of Lake Charles.

Besides LNG, Kinder Morgan is among several midstream companies that are building new pipelines to boost takeaway capacity from key shale basins, in an effort to support the strong demand from Mexico. Its planned Gulf Coast Express and Permian Highway Pipeline projects both will target the Permian.

-- Harry Weber, Harry.Weber@spglobal.com

-- Edited by Jennifer Pedrick, newsdesk@spglobal.com