Kinder Morgan Ups Spending for 2021 After Winter Storm Ups Profits

Researched by Industrial Info Resources (Sugar Land, Texas)--Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas) reported a stunning one-time gain in profits following Winter Storm Uri, which resulted in freezing conditions across Texas that boosted natural gas and power-generation prices. The company saw as much as $880 million in gas sales, far exceeding expectations and likely contributing to its decision to spend more sustaining capital in 2021, compared to the previous year. Industrial Info is tracking $11.4 billion in active projects from Kinder Morgan, including about $2.5 billion worth in the U.S. that are set to begin construction later this year.

Click on the image at right for a graph detailing Kinder Morgan's active projects, by project type.

Kinder Morgan expects 2021's distributable cash flow (DCF) to total between $5.1 billion and $5.3 billion, an increase from its $4.4 billion estimate in December. (Kinder Morgan's DCF includes discretionary capital expenditures and dividends.) Kinder Morgan's first-quarter net income totaled $1.41 billion, compared with a $306 million net loss in first-quarter 2020, when the company reported $971 million in impairment charges.

"We realized greater margins on Kinder Morgan's Texas intrastate pipeline systems, resulting from the temporary supply and demand imbalances and substantial spot market price volatility caused by the storm; as well as favorable contributions from the CO2 segment, which curtailed oil production during the storm, allowing power it would have used to be delivered to the grid," the company said in a quarterly earnings-related press release.

Kinder Morgan already was seeing plenty of business from Texas' Permian Basin, which saw a surge in demand for takeaway capacity in the years leading up to the COVID-19 pandemic, and began full commercial service on its Permian Highway Pipeline six weeks before Winter Storm Uri. But executives are downplaying the possibility of another pipeline system out of the Permian: the proposed Permian Pass Pipeline, which would carry about 2 billion cubic feet per day of gas from the Permian Basin to the Texas Gulf Coast, was delayed in first-quarter 2020 due to permitting issues and scaled-down activity from producers, and the pandemic does not appear to have improved its prospects. If you subscribe to Industrial Info's Oil & Gas Pipeline database, see our project reports on the Permian Highway and Permian Pass pipelines.

Natural Gas Pipeline Company of America LLC's (NGPL) Gulf Coast Southbound project, in which Kinder Morgan holds a 50% ownership, was placed in service on March 1. The expansion increases southbound capacity on NGPL and Kinder Morgan's Gulf Coast System, which runs from Chicago to the Texas Gulf Coast area, by about 460 million standard cubic feet of per day. Kinder Morgan already is at work on a second phase, including modifications at Compressor Station 300 in Victoria, Texas, and replacements and unit additions at Compressor Station 304 in Marshall, Texas. Construction had faced delays amid the pandemic, but is now set to wrap up in the coming weeks. If you subscribe to Industrial Info's Oil & Gas Pipeline database, see our project reports on station 300 and station 304.

Kinder Morgan also recently completed construction on an estimated $45 million expansion of its butane-on-demand blending system at its terminal in Galena Park, Texas, which is now entering its final commissioning stage. The company added a 30,000-barrel butane sphere and an inbound C4 pipeline. The project is supported by a long-term agreement with an investment-grade midstream company. If you subscribe to Industrial Info's Oil & Gas Pipeline database, see our project report.

"Our terminals business fundamentals have been impacted by two events: the winter storm, and the continued impact of the pandemic," said Kimberly Dang, the president of Kinder Morgan, in a quarterly earnings-related conference call. "The winter storm is short-lived with the impact limited to the first quarter. The pandemic is lingering, and it continues to impact our petroleum product volumes, as well as the demand for our Jones Act tankers." The "Jones Act" refers to the marine transportation of crude oil, condensate and refined products.

Chief Executive Officer Steve Kean said Kinder Morgan's storage assets "performed exceptionally well" during Winter Storm Uri, allowing the company to deliver significant volumes of gas into the market at contractual or prevailing prices.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.