Kinder Morgan (KMI 0.51%) has undergone a dramatic transformation over the past decade. The most notable change is that the company has significantly improved its financial profile in recent years, which positions it to capture opportunities it sees up ahead. One of the biggest is building new natural gas infrastructure in light of the outlook that the industry needs to invest more than $400 billion into expanding to meet forecasted demand growth over the next two decades.

Because of that, investors can expect Kinder Morgan to be even more of a natural gas pipeline-focused company in 10 years.

A person in a hardhat standing near a stack of pipelines.

Image source: Getty Images.

Stepping on the gas

Kinder Morgan currently has $6.5 billion of expansion projects underway. The company is investing more than 70% of that money into growing its natural gas infrastructure business. One of its biggest investments is building the Elba liquefaction terminal near Savannah, Georgia, which will manufacture and export liquefied natural gas (LNG) to global markets. In addition to that, the company is building two large-scale pipelines to move natural gas from the fast-growing Permian Basin to the Gulf Coast as well as expanding existing pipelines to move gas to LNG export facilities, Mexico, and power plants.

Those gas-related investments alone have the potential to boost earnings by 11% over the next two years. Further, they position the company to capture additional expansion opportunities, driven by the anticipated 40% growth of the North American natural gas market over the next 10 years. 

Ample opportunities for continued expansion

In Kinder Morgan's view, it can capture $2 billion to $3 billion of additional expansion projects per year, predominantly on the natural gas side. That implies the company could invest $20 billion to $30 billion in expanding its footprint over the next decade. At the low end of the company's forecast, it can grow earnings by a more than 4% annual pace, with the potential for a much faster growth rate if it invests at the upper end of that range or on higher-returning projects.

One opportunity the company sees is additional investment in LNG-related infrastructure due to the view that gas demand by the sector will rocket 600% over the next 10 years. Kinder Morgan and its partner Brookfield Infrastructure Partners (BIP 0.56%), for example, recently secured a long-term contract with a large LNG producer, which enabled them to sanction phase two of the Gulf Coast expansion of their jointly owned natural gas pipeline system. The $230 million project will supply Kinder Morgan and Brookfield Infrastructure with $50 million of annual earnings when it comes online in the middle of 2021.

Pipelines laid out for construction.

Image source: Getty Images.

In addition to that high-return pipeline expansion, Kinder Morgan is also developing a second LNG export facility. The company's proposed Gulf LNG export terminal in Mississippi recently received a key environmental report, which puts the company one step closer to giving the project the green light. It could be an important one not only for Kinder Morgan but for the global LNG industry, given that there could potentially be a shortfall in LNG supply by the middle of the next decade if the industry doesn't move forward with building new capacity.

Meanwhile, natural gas production in places like the Permian Basin, the Haynesville Shale, and the Marcellus Shale is expected to rise 40% in the next decade. As that happens, the industry will need to build additional pipeline capacity to move that production to end markets. For example, the company has already started talking about the potential to construct a third large-scale pipeline out of the Permian and could build even more pipelines in that region as well as expand existing ones to serve the anticipated production growth coming from the area.

On the other side of the equation is building additional pipelines to move these growing gas supplies to end users. Aside from supporting LNG export projects, the company is also looking at building pipelines to feed gas-fired power plants since the sector is on pace to consume 28% more gas in the next 10 years. In addition to that, Kinder Morgan has the potential to move gas to fast-growing market centers in the Northeast. With a more than $400 billion market opportunity, the company should have no problem expanding its gas pipeline business at a healthy clip in the coming decade.

What the next decade could hold for investors

At a minimum, Kinder Morgan believes it can invest $20 billion over the next decade to build new natural gas infrastructure, which should grow its earnings by at least 4% per year. Add that growth rate to the company's nearly 5%-yielding dividend, and Kinder Morgan has the potential to generate total annual returns of around 10%. 

However, if Kinder Morgan secures more projects and uses some of its growing stream of free cash flow to buy back stock, shares could deliver much higher total annual returns in the coming decade, especially given how cheap they are these days. That potential to earn solid to spectacular total annual returns makes it a great stock to consider buying for the decade ahead.