Kinder Morgan (NYSE:KMI) finally has some good news for investors in regards to its growth pipeline. That good news was the announcement that the company received authorizations from FERC for its Elba Liquefaction Project as well as for a number of related pipeline projects. With these approvals the company now remains on pace to export LNG out of its Elba Island LNG Terminal by mid-2018.
The Elba Project
Kinder Morgan's Elba Liquefaction Project is expected to cost $2 billion and be constructed and operated at the company's existing Elba Island LNG Terminal near Savannah, Georgia. The company is planning to build 10 liquefaction units at the site, with the first expected to be operational in the second quarter of 2018 while the rest of the units are expected to be up and running by the end of that same year. Once fully operational the project will have an estimated total capacity to produce 2.5 million tonnes of LNG per year, or roughly 350,000 Mcf of natural gas per day, with its capacity fully supported by a 20-year contract with Royal Dutch Shell (NYSE:RDS-A).
For perspective, Kinder Morgan's project is much smaller in scale than most of the other LNG projects in development. For example, Sempra Energy's (NYSE:SRE) Cameron LNG facility's initial three train liquefaction project is expected to export up to 2.1 Bcf of natural gas per day when it comes online in 2018. In addition to that, Sempra Energy has already applied for federal approval to build two more liquefaction trains at Cameron, which would increase its LNG production capacity by 1.35 billion cubic feet of natural gas per day. That said, the much larger project does come with an equally larger price tag, with Sempra Energy expecting the first phase to cost $10 billion.
The LNG value chain
Aside from the approval to construct the Elba project, Kinder Morgan also received FERC certificates for the Elba Express Company Modification Project and the Southern Natural Gas Zone 3 Expansion project. Together these projects are expected to cost $306 million and enable Kinder Morgan to move additional gas supplies to industrial customers and utilities in Georgia and Florida as well as supply gas to Elba Island for liquefaction. Further, these projects are expected to provide a near-term boost to the company given that the projects are expected to be placed into service by the end of this year.
What's worth noting about these pipeline projects is the fact that they're being partially driven by the need to supply gas to an LNG export facility, which is expected to be a key growth driver for the company going forward. Kinder Morgan has already captured a number of investment opportunities to build pipelines to LNG export projects, including a recent award to invest $212 million in a pipeline expansion project to supply gas to a liquefaction project along the Gulf Coast. The company expects to capture additional LNG-related growth opportunities in the future due to the enormous growth in LNG demand that's projected over the next decade. In fact, after exporting virtually no LNG last year, the U.S. is expected to export 10.9 Bcf/d of natural gas by 2025, which would be slightly more than 10% of the country's total natural gas supply in a decade. Given the sheer growth of projected LNG demand as well as the associated increase in supplies needed to meet this demand, Kinder Morgan should have a lot of growth opportunities come its way thanks to the LNG megatrend.
LNG is expected to be a key growth driver for Kinder Morgan in the future. Not only does it have its own export projects in development, but these projects and competing LNG projects will require additional pipeline capacity be built to supply gas. That provides Kinder Morgan with a number of ways to capture value from this emerging megatrend in the years ahead.