The Kinder Morgan (NYSE:KMI) family of companies recently reported strong first-quarter earnings. The biggest driver for the group was the natural gas pipeline segment at Kinder Morgan Energy Partners (NYSE:KMP). Earnings for that segment were up 46% as a combination of acquisitions and organic-growth projects fueled the boost. Overall, natural gas really stole the show this quarter for the company, and is likely to fuel strong results in the future.
Keeping Americans warm
Kinder Morgan CEO Richard Kinder noted that the company transported about 33 billion cubic feet of natural gas per day during the coldest days of this past January. Those volumes represented about a third of America's total market demand. If it wasn't for Kinder Morgan's pipelines, it would have been an even colder month for many Americans.
The natural gas pipeline segment at Kinder Morgan Energy Partners operated at near capacity during much of the cold winter months. The company's employees were able to meet this operational challenge to keep gas continually flowing out of storage and through its pipelines. This segment helped fuel a lot of profit for Kinder Morgan in the quarter, and should continue to do so for decades to come.
While demand in the winter was high, the company is seeing "unprecedented demand" overall for natural gas transportation capacity, according to Mr. Kinder. He noted that, since the beginning of December, the company has signed up 2.8 billion cubic feet per day, or Bcf/d, of new firm transportation commitments with customers. The average contract duration for these new commitments is about 15 years. This will result in the company investing to increase its capacity in order to meet all of this demand.
On the conference call with analysts, Mr. Kinder noted that there's a lot more demand beyond this in the pipeline, so to speak. He pointed out that energy research firm Wood Mackenzie recently put out its preliminary outlook that suggested that natural gas demand in the U.S. will rise from 71.5 Bcf/d to 94.5 Bcf/d by 2024. That's another 23 Bcf/d of demand, which is truly remarkable when we consider that Kinder Morgan moved 33 Bfc/d of gas, and controls a third of the market. This demand growth is a big opportunity for Kinder Morgan to increase capacity and capture more market share.
Demand growth is coming from multiple sources, including LNG exports, additional natural gas fueled electric generation, an increase in industrial use, and more gas exports to Mexico. The one real big driver could be the $70 billion in announced U.S. petrochemical development along the Gulf Coast, all of which will need a steady supply of natural gas.
Overall, there are tremendous investment opportunities for a company like Kinder Morgan to build and operate the infrastructure needed to fuel this growth. In fact, a recent study projected that America's energy industry needs to spend a mind-blowing $641 billion between now and 2035, or an average of $30 billion per year. That's triple the estimate of just a few years ago. Kinder Morgan stands at the forefront of an unprecedented opportunity to build the critical energy infrastructure that America will need in the decades ahead.
Kinder Morgan does a lot of things, and it does a lot of things very well. However, what it does best is move natural gas, and that has it positioned perfectly for America's natural gas fueled energy future. With $16.4 billion in projects already in the pipeline and more on the way, Kinder Morgan has a really bright future that will be fueled by natural gas.
Matt DiLallo has the following options: short January 2016 $32.5 puts on Kinder Morgan and long January 2016 $32.5 calls on Kinder Morgan. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.