Earlier this year negative media attention and fears of a growth slowdown caused Kinder Morgan Morgan Energy Partners (NYSE: KMP), Kinder Morgan Inc (KMI 0.80%), Kinder Morgan Management (NYSE: KMR), and El Paso Pipeline Partners (EPB) to fall to valuations not seen since the financial crisis of 2009.
Kinder Morgan responded by reiterating its distribution growth guidance of 5% for Kinder Morgan Energy Partners, 8% dividend growth guidance for Kinder Morgan Inc, and pointed to its $14.8 billion project backlog as evidence of future growth. That backlog increased to $16.4 billion by the time Kinder Morgan announced record-breaking first quarter results, when it beat its guidance and increased its distribution by 6% and dividend by 8%. This represented 12 out of 13 years in which Kinder Morgan has met or beaten distribution/dividend growth guidance.
Recently three exciting pieces of information have come to my attention. They illustrate why Kinder Morgan's family of companies/MLPs represents some of the best long-term income investments in America.
America's gas future
The Energy Information Administration (EIA) recently published its 2014 energy outlook report, and here are two major highlights:
- By 2040 America's gas production will increase by 56%.
- Before 2020 America will be a net exporter of LNG (liquefied natural gas).
According to a study by IHS, this increased production will require $780 billion in new midstream and downstream (refining and processing) infrastructure by 2025.
This means that Kinder Morgan's current project backlog represents just 2% of this necessary spending, a drop in the bucket that means plenty of potential growth ahead. I've recently learned that Kinder Morgan's potential growth pipeline stands at $15 billion -- representing a near doubling of its current backlog but still representing only 4% of the coming energy infrastructure boom.
Energy megatrends that will drive Kinder Morgan's growth
Kinder Morgan is predicting four key megatrends will drive an increase in natural gas demand of 36% or 23.6 Billion cubic feet/day (Bcf/d) over the next decade:
- Exports to Mexico: +2.5 Bcf/d.
- Natural Gas Liquid exports and petrochemical industry boom: +3.8 Bcf/d.
- Power Generation: +7.2 Bcf/d.
- LNG exports: +10.1 Bcf/d.
Kinder Morgan Energy Partners, Kinder Morgan Management, Kinder Morgan Inc, and El Paso Pipeline Partners represent a $110 billion energy empire that is the fourth largest energy company in America. However, it is merely a large fish in an oncoming tsunami of oil and gas money that is sure to drive strong and consistent dividend/distribution growth for decades to come. This is why Kinder Morgan's family of pipeline companies is likely to remain one of the best income growth choices in America.