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Kinder Morgan Continues to Take Aim at This $321 Billion Market Opportunity

By Matthew DiLallo – Updated Apr 17, 2019 at 12:43PM

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The natural gas pipeline giant is working with others to boost its opportunity set.

Kinder Morgan (KMI -0.92%) is the largest natural gas pipeline company in North America. Because of that, natural gas is the company's biggest moneymaker, as well as its largest growth driver, since $3.9 billion of its $5.7 billion expansion backlog are gas-related projects. Further, the company sees more gas-fueled growth ahead given that the industry needs to invest more than $400 billion into building more gas-related infrastructure through 2035. That leads Kinder Morgan to believe that the bulk of the estimated $2 billion to $3 billion of new expansions it expects to capture each year will be in this space.

However, Kinder Morgan has recently been making moves to capture some oil infrastructure projects, which is also a mammoth opportunity pegged at $321 billion over that timeframe. If the company is successful in securing these projects, they'll enable the pipeline operator to grow at an even faster pace in the coming years than if it focused solely on gas-related investments.

A pipeline with a refinery in the background

Image source: Getty Images.

Joining forces again

Kinder Morgan provided more details on its latest oil-related venture this week after the company and Phillips 66 Partners launched a joint effort to secure additional shippers for two of their oil pipelines in Texas. Phillips 66 Partners is currently leading the development of the Gray Oak Pipeline, which it co-owns with Marathon Petroleum and Enbridge (ENB -0.05%). That 900,000 barrel-a-day (BPD) pipeline would extend more than 850 miles from the Permian Basin to destinations in Corpus Christi, Sweeney, and Freeport, Texas.

However, to give customers even more flexibility, Phillips 66 Partners is providing shippers with the option to also move crude on Kinder Morgan's crude and condensate system (KMCC) to delivery points along the Houston Ship Channel. This joint effort could enable both companies to move more oil on these systems, with Kinder Morgan potentially expanding KMCC by 100,000 BPD. That project would not only boost the company's oil volumes in the near term, but it could open the door for other expansions down the road, such as additional storage terminal capacity as well as connecting KMCC to other Permian oil pipelines.

Lots of oil-fueled growth potential

That potential expansion of KMCC is one of several oil-related projects the company currently has in development. Another notable opportunity is the Texas COLT offshore loading terminal, which is a joint venture with Enbridge and Oiltanking. Kinder Morgan would contribute an underutilized coal terminal to serve as the onshore storage location for the facility, which would source oil from Enbridge's Seaway and Grey Oak pipelines. The partners would also build an underwater pipeline into the Gulf to connect to a new offshore terminal capable of loading Very Large Crude Carriers, which are ships that can hold 2 million barrels of oil.

In addition to that project, Kinder Morgan recently teamed up with Tallgrass Energy (TGE) on a joint venture that would increase the oil takeaway capacity of the Rockies region. The projects would include combining Tallgrass Energy's Pony Express Pipeline with two of Kinder Morgan's underutilized gas pipelines in the region that it would convert to oil service as well as building an additional 200 miles of pipeline. These projects would help boost regional oil takeaway capacity by 550,000 BPD.

That venture also improves the likelihood that Kinder Morgan and Tallgrass Energy would move forward with two separate oil pipeline projects. In Kinder Morgan's case, it would be able to increase the capacity of its Double H pipeline, which would move oil from North Dakota's Bakken shale to its oil hub in Cushing, Okla., by way of the expanded Pony Express system. Meanwhile, Tallgrass Energy is working on a project to build an oil pipeline from Cushing to the coast of Louisiana, where it would also construct an oil export terminal.

Check out the latest Kinder Morgan earnings call transcript.

Working hard to capture new opportunities

While natural gas remains a major growth driver for Kinder Morgan, the company's operations stretch across the oil and gas midstream value chain. One of the benefits of this diversification is that it enables the company to capture additional expansion opportunities so it can grow earnings at a faster pace. In addition to that, these projects have the potential to earn higher returns on investment since Kinder Morgan is either going to contribute an underutilized asset or expand an existing one, which should reduce costs and boost project-level returns compared to the cost of a new build. It's all part of the company's focus on investing where it can earn the best returns.

Matthew DiLallo owns shares of Enbridge and Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

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