Kinder Morgan (KMI -0.30%) is one of North America's leading energy infrastructure companies. It operates the largest natural gas transmission network, is the largest independent transporter of refined products, and is the largest independent terminal operator. It also has the largest carbon dioxide transportation capacity in the country. That carbon dioxide business puts Kinder Morgan in an excellent position to capitalize on the growing need for infrastructure to transport and store the greenhouse gas.
Carbon capture and storage is a potentially multitrillion-dollar market opportunity. That's leading EnLink Midstream (ENLC -6.27%) to build a carbon solutions business of its own. That could give the company more fuel to sustain and expand its dividend, which at current share prices already yields 3.9%.
A legacy leader in carbon dioxide
Kinder Morgan is a leader in carbon dioxide solutions. The company extracts the gas from underground reservoirs and transports it via an extensive 1,500-mile pipeline network to oil fields in the Permian Basin, where its customers inject the gas into older oil reservoirs to increase pressure and boost output -- one method in the suite of tools the industry calls "enhanced oil recovery." The company's legacy carbon dioxide business supplies it with about 9% of its earnings, including oil, natural gas liquids, and carbon dioxide sales and transportation fees.
The company sees many opportunities to leverage its experience to participate in the emerging carbon capture, utilization, and sequestration (CCUS) sector. For example, it could supply captured carbon instead of extracted gas to its enhanced oil recovery clients. It also sees potential to repurpose existing pipelines to transport captured carbon dioxide and develop underground carbon sequestration hubs. President Biden's massive Inflation Reduction Act also included carbon capture tax credits that are making the process more economical, which could provide Kinder Morgan with new commercial opportunities. That could enable it to grow its carbon dioxide business into an even more meaningful contributor of revenues and profits.
Seeking to capture the carbon opportunity
EnLink Midstream formed its carbon solutions group in the middle of last year. The company noted at the time that it owns the largest intrastate pipeline network in Louisiana, which connects it to industrial users in an area of the country with unusually intense carbon dioxide emissions. As such, EnLink believes it's well-positioned to capture opportunities in the CCUS space.
The company recently capitalized on one opportunity. It signed a transportation service agreement with ExxonMobil (XOM -1.54%) to utilize portions of its existing pipelines and new facilities to move carbon dioxide to a 125,000-acre storage location the energy giant is building in Louisiana. ExxonMobil initially reserved 3.2 million metric tons of transport capacity per year starting in 2025, and could ultimately increase that to 10 million tons per year. That initial capacity will support Exxon's landmark agreement with CF Industries to capture, transport, and store 2 million tons of carbon dioxide annually from a manufacturing complex.
EnLink is also working with several other companies to develop carbon solutions. For example, it's jointly developing a complete carbon capture, transportation, and sequestration services solution with Talos Energy (TALO -2.69%). They would use portions of EnLink's 4,000 miles of pipeline in Louisiana to transport captured carbon to Talos's 26,000-acre River Bend CCS site, which has the capacity to store 500 million metric tons of carbon dioxide. It's also working on a potential CCS solution with Occidental Petroleum (OXY -3.15%). EnLink would transport carbon dioxide over existing and new pipelines to a more than 30,000-acre site Occidental plans to develop for permanent storage.
These moves position EnLink to develop a meaningful carbon solution business that would increase the utilization of its existing pipeline network even as the company built new carbon dioxide transportation pipes. That would grow its cash flows, giving it more money to support and expand its dividend.
Cashing in on carbon dioxide
Kinder Morgan makes a lot of money transporting carbon dioxide and selling it to oil extractors. Meanwhile, it's looking for opportunities to leverage that expertise to participate in the potentially massive CCUS market.
EnLink wants to do the same, leveraging its extensive legacy gas pipeline system in Louisiana to transport captured carbon. That could be a significant future growth driver for the pipeline company, potentially giving it the fuel to expand its attractive dividend.
