What’s Driving MLP Growth?

Steve Kean, the President and COO of Kinder Morgan, joins the Fool to discuss the energy industry and his company's contribution to it as the largest midstream energy company in North America. The Kinder Morgan family includes Kinder Morgan, (KMI 0.13%), Kinder Morgan Energy Partners, L.P. (NYSE: KMP), Kinder Morgan Management, LLC (NYSE: KMR), and El Paso Pipeline Partners (EPB).

Is MLP growth a result of the interest rate environment, or is it a byproduct of growth in the energy industry as a whole? In this video segment Mr. Kean says it's both, and goes on to explain the breakdown of Kinder Morgan's $14 billion backlog. The full version of the interview can be seen here.

A full transcript follows the video.

Taylor Muckerman: Taylor Muckerman here with Steve Kean, COO and President of Kinder Morgan. We're here down in Houston, Texas, at their headquarters. Thank you for having us.

Steve Kean: Great to be here.

Muckerman: Just a few questions. To get started right off with the industry of the MLP space; really been driving growth here with investors, trafficking pretty regularly to the MLP industry.

I was just wondering if you had a feeling on whether or not it was largely to do with the low interest rate environment right now, with investors seeking dividends, or if it was more to do with just the dynamic growth that the industry has been seeing recently.

Kean: It's a combination. Certainly what we offer and what a lot of MLPs offer is nice, steady distributions; cash flow going back to investors. In our case, or MLPs trade at a yield of about 6-6.5%, and then on top of that we were able to grow our distributions. We're currently expecting 5-6% over about a four-year period.

That's a good return for investors. We think it's an attractive alternative, versus what else they're looking at out there, and the growth part of it is a big piece of it.

Right now in North American energy there's a massive growth in production, and that production needs to get from where it is to where it's needed. It needs to be transported, it needs to be stored. That's where we come in. We do that for a fee. It's a nice stable, but growing, investment opportunity.

Muckerman: I'd like to follow up on both of those topics. You mentioned a $14 billion backlog. Where do you see the majority of that being directed as far as geographically, and maybe even in terms of resources; natural gas versus liquids and oil?

Kean: About 90% of that backlog is directed to fee-based pipelines and terminal facilities. The other 10% is in the part of our business where we have oil production. The vast majority of it is directed to fee-based assets and it's scattered, really, across them.

The biggest single project in that backlog is we've got about a $5.4 billion expansion on our Canadian pipeline, to move more oil from the oil sands to the West Coast, where it can feed refineries and then be loaded into ships and transported to markets overseas. That's a big piece.

In our natural gas business unit, we've got about $2.8 billion of project backlog, another $2.1 in our terminals business. It's really across the country.

In our terminals business in particular, there's a fair amount of concentration in Edmonton and Houston because that's where a lot of the energy is either being produced or it needs to be handled somehow, so there's a lot of investment there. But on our pipelines, it's really across the continent.

Muckerman: Yeah, it really does span Canada, and even down to Mexico, I believe.

Kean: Yes.