Kinder Morgan (NYSE: KMI) is one of the biggest energy infrastructure companies in North America. In fact, it's the largest independent transporter of petroleum products and carbon dioxide, the top independent terminal operator, and it operates the largest natural gas pipeline network on the continent. That gas system is vital to both the company -- since it's where it makes most of its money -- and the continent, given its size and capacity. It's an incredible system that's a crucial fuel for the company's dividend.
A massive highway for energy
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Kinder Morgan owns or operates roughly 70,000 miles of natural gas pipeline across North America, which for perspective is enough pipe that if laid end-to-end would circle the world not once, or twice but nearly three times. That said, the bulk of these pipes run across the U.S., enabling Kinder Morgan to transport about 38% of the gas consumed in the country on a daily basis.
Those pipelines are a superhighway for natural gas, moving it from production basins to major market centers. One of its longest systems is Tennessee Gas Pipeline (TGP), which is an 11,800-mile network that moves gas from Louisiana, the Gulf of Mexico, and south Texas to the northeast, including New York City and Boston. Another major system is the Natural Gas Pipeline Company of America (NGPL), which is a 9,200-mile network that runs across the middle of the country and transports gas to the high-demand Chicago market. The company also co-owns the 5,500-mile Florida Gas Transmission pipeline that services markets across the Sunshine State and has a 50% stake in the 7,000-mile Southern Natural Gas (SNG) system, which transports gas to major southern markets like Atlanta. In other words, the company's pipelines serve as a critical pathway to help fuel these major U.S. cities.
More on the way
While Kinder Morgan is already the largest transporter of natural gas in North America, it expects to spend $3.6 billion over the next five years to expand its industry-leading position. One of its largest gas pipeline investments is the $800 million Broad Run Expansion and Broad Run Flexibility projects on its TGP system, which will enable natural gas driller Antero Resources (NYSE: AR) to move gas from a receipt point in West Virginia to delivery points in Mississippi and Louisiana. Antero Resources signed a 15-year firm capacity contract with Kinder Morgan to underpin this project that will supply the company with steady cash flow. Some of its other notable gas pipeline expansions are the $150 million Lone Star Project on TPG and the $240 million Fairburn Expansion Project on SNG.
Meanwhile, the company has several other pipeline projects that are in earlier stages of development. One of the biggest is a more than $1 billion pipeline partnership with DCP Midstream (NYSE: DCP) to move gas from the fast-growing Permian Basin to the Gulf Coast. The proposed 430-mile Gulf Coast Express Pipeline could enter service by 2019 if Kinder Morgan and DCP Midstream secure enough shippers to justify the investment. On top of that, Kinder Morgan's partner on NGPL noted last quarter that in addition to the Chicago market and Gulf Coast Southbound expansion projects already underway on that system that they have a $300 million backlog of potential projects that they hope to secure over the next year.
Those projects are just the ones the company has publicly identified as having a high probability of moving forward in the near-term. However, Kinder Morgan should have ample opportunities to continue growing its gas pipeline network over the long-term thanks to the expectation that gas demand in North America will increase 35% over the next decade alone. Fueling that growth forecast are new gas-fired power plants under construction and rising export volumes by pipeline to Mexico as well as through liquified natural gas facilities under development. In fact, according to one projection, growing natural gas demand will require that the industry build $290 billion to $376 billion of new natural gas infrastructure in North America over the next 20 years, which represents a massive opportunity for Kinder Morgan.
A steadily growing income stream
Kinder Morgan's extensive natural gas pipeline business is crucial to investors because it supplies steady cash flow since long-term fee-based contracts underpin the bulk of this network. Those contracts help support the company's solid 2.7% yielding dividend and its ability to invest in growth projects that should expand its network and cash flow. In fact, thanks to the strength and growth prospects of Kinder Morgan's natural gas business, it's on pace to increase the dividend by 60% next year and 25% in both 2019 and 2020, with the possibility to continue growing at a healthy clip in future years as it develops additional projects. That growth has the potential to handsomely reward investors who hold for the long-term.
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Matthew DiLallo owns shares of Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan, long January 2018 $30 calls on Kinder Morgan, and short December 2017 $19 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
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