Kinder Morgan (KMI 0.18%) is a leader in natural gas transportation. The energy infrastructure giant moves about 40% of all the gas produced in the U.S., including roughly half the gas flowing to liquefied natural gas (LNG) export terminals. It has its fingers on the pulse of the global gas market.
Here's a look at what it sees ahead for the gas market following Russia's invasion of Ukraine.
Drilling down into the Russian situation
Kinder Morgan recently reported strong first-quarter results. It's benefiting from higher oil and gas prices, which have surged following Russia's invasion of Ukraine. That's partly because Russia is a leading global producer of both commodities. Further, Europe had been a leading destination of Russian gas, but many governments are working to lock up gas supplies from elsewhere due to growing sanctions on the Russian economy.
Kinder Morgan's co-founder and Executive Chairman Richard Kinder addressed this situation during the company's first-quarter conference call. He opened by stating:
Since our last call in January, seismic events have occurred. The Russian invasion of Ukraine has shaken the world order as we know it with a dramatic impact on the economy of Europe, and indeed, the entire world. Predicting how this whole tragic situation will be finally resolved is far beyond my capabilities, but I'm pretty certain the impact on the energy segment of the economy will be significant, at least over the next several years.
He noted that the situation showed how dependent the world remains on fossil fuels. It also highlighted how tight the market is for natural gas and LNG, given the infrastructure required to transport gas globally. The CEO then pivoted to address what this situation means for the U.S. energy market by stating:
In my judgment, the crisis plays to our strengths. The U.S. is a reliable supplier with the ability to grow its production modestly in the near term and more robustly in the intermediate-term. We operate under a transparent legal system, and we have technical expertise from the wellhead to the burner tip that is unmatched anywhere in the world. For all of these reasons, the United States will be a major part of the solution to adequately supply the world with oil and natural gas it needs to surmount the present problem. In particular, the U.S. will be a major supplier of additional LNG to Europe to replace at least in part Russian gas. I anticipate that all of our present LNG export facilities will be running at capacity for the foreseeable future, and the contracts necessary to support the construction of new facilities in the next few years will be more attainable than they've been in the past.
How this could affect Kinder Morgan's gas business
Kinder then turned his attention to how the situation would affect Kinder Morgan. He stated that:
The impact of these developments will benefit the midstream energy segment and Kinder Morgan specifically in both the short term and the long term...As volumes increase, throughput will increase, as will the need for selective expansions and extensions of the network. In short, it's a good time to be long natural gas infrastructure.
He then turned the call over to the company's management team, who discussed new emerging project opportunities that the company is starting to see as gas demand and prices rise. CEO Steve Kean stated that it's seeing potential project developments pop up across its Bakken, Haynesville, and Altamont assets. Kean also noted that the company is seeing "increasing interest in new Permian transportation capacity."
The CEO said that the company is working on commercializing and developing compression expansions on its Permian Highway Pipeline and Gulf Coast Express Pipeline that could add up to 1.2 billion cubic feet per day of additional gas takeaway capacity. This type of expansion is very low risk and capital efficient. Further, the company can complete it quickly, getting it into service in about 18 months. This expansion would provide customers with a near-term solution for additional gas takeaway capacity.
Meanwhile, Kinder Morgan is starting to see the potential revival of some longer-term projects that it put on hold. The company estimates that the Permian Basin will need a third large-scale gas pipeline by 2026, potentially providing the opportunity to move forward with its proposed Permian Pass project. The company also sees the possibility of a small-scale expansion of its Elba Island LNG export facility in Georgia. It discussed a potential expansion a couple of years ago, but given what's happening in the market, it's starting to make sense to look at that project again.
The outlook for gas-fueled growth is getting brighter
There has been a lot of uncertainty about whether Kinder Morgan would be able to continue finding attractive gas-related expansion opportunities, given the accelerating shift toward renewable energy. However, there's increasing interest in expanding U.S. gas production and exports following Russia's invasion of Ukraine. As a result, Kinder Morgan is starting to see new project opportunities emerge that could fuel growth in the coming years. If Kinder Morgan can convert these opportunities into commercially secured projects, it could provide its stock with a big boost.