According to Kinder Morgan (NYSE: KMI) investor presentations, demand for natural gas in the US expected to rise by 32% over the next nine years. Most of those gains will come from the US becoming a net exporter of natural gas in 2017, with exports predicted to keep increasing. Since Kinder Morgan operates one of the largest networks of natural gas pipelines in the US, moving about 40% of gas consumed in the US, it's in a good position to capture much of this business.
The plan in the pipeline
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We can glimpse into Kinder Morgan's future by looking at their current capital projects. Kinder Morgan's largest capital project on the go is the expansion of their LNG plant on Elba Island, in Georgia, to include liquefaction and export capacity. This $1.9 billion project is supported by 20-year contract with Royal Dutch Shell and due to come on line next year. Additionally, there is about $2 billion worth of various expansion or upgrade projects underway along its gas network also subscribed under long-term contracts, some of which related to pipelines connecting to Mexico. The Mier-Monterrey pipeline is one example.
The hopeful result of its natural gas infrastructure build-out, combined with a few other major projects in other non-gas segments, is that Kinder Morgan expects to increase annual EBITDA by $1.5 billion for 2020 and beyond.
What's everyone else doing?
Kinder Morgan is not alone in seeing natural gas as a major growth opportunity. Many gas infrastructure companies are investing heavily. There has been a boom in construction of liquefaction and export terminals along the Gulf Coast. There are six new LNG export terminals currently under construction, including Kinder Morgan's Elba Island, and four more approved. On top of that, there are 10 pending applications and four in pre-filing status with the Federal Regulatory Energy Commission. A good majority of these LNG terminals are located on the Gulf Coast where Kinder Morgan has a significant network of pipelines and storage facilities. The U.S. may not be on the list of the world's largest liquefied natural gas exporters, but it will be soon if all of these projects get the green light.
Terminals aren't the only thing being built. The pipeline expansion to Mexico has been expanding significantly; there are four new natural gas export pipelines completing construction in 2017 and two more being added in 2018. Export capacity to Mexico is expected to double with the addition of these pipelines.
A closer look at demand from Mexico
Kinder Morgan is well positioned to take advantage of increased exports to Mexico. It captured 76% of gas exports to Mexico last year, which means it's pipeline infrastructure is currently a dominant player along the border.
Demand in the Mexican market is expected to grow because Mexico's own domestic natural gas supplies are falling at the same time that it needs more. In 2016 Mexico imported about 5% of daily US gas production.
The U.S. Energy Administration states that "with a near doubling of U.S. export pipeline capacity to Mexico by 2019, [it] expects U.S. natural gas exports to increase, though they should remain well below the available pipeline capacity. Mexico's national energy ministry (SENER) expects to increase its natural gas use for electric power generation by almost 50% between 2016 and 2020. Mexico's domestic natural gas pipeline network is undergoing a major expansion, primarily to accommodate new natural gas pipeline imports from the United States."
Mexico is resisting this trend a little bit, and has just recently opened up the northeastern part of Mexico, part of the Burgos Basin region, to private exploration firms, to offset dependence on imports.
Nevertheless, from the U.S. perspective, exports to Mexico eclipse exports to other countries. In 2016 the U.S exported 2.148 billion cubic feet of gas via pipeline and only 186.8 million cubic feet via LNG vessel. The bulk of the pipeline exports (62%) were to Mexico which indicates the significance of the Mexican market to the U.S.
Having a large developing export market just across the border is a boon to U.S. gas companies. While the new Mier-Monterrey pipeline to Mexico is the only export pipeline directly owned by Kinder Morgan, it is expanding many of the feeder pipelines which will supply U.S. gas to Mexico.
A rosy outlook
In total Kinder Morgan owns 70,000 of natural gas pipelines in the U.S. It is well positioned to feed both the large number of LNG export terminals being built on the Gulf Coast and the extensive pipeline build-out for the Mexican market.