Kinder Morgan’s project backlog dwarfs previous growth spending

Building pipelines from newly fired-up resource plays to U.S. markets will take a huge amount of industry money, but for the country’s largest pipeline player, the future already has a number: $14 billion.

That’s the dollar amount pegged to Houston-based Kinder Morgan’s 5-year project backlog of pipeline, terminal and other planned infrastructure bids that have yet to see the light of day, said Steven Kean, president and chief operating officer for the company, in New York last week.

The figure surpasses the $10.6 billion the company expects to spend on expansions and acquisitions this year – and it dwarfs the company’s average $3.2 billion in growth spending from 2007 to 2012.

Southeast: Natural gas transport project in high demand, Kinder Morgan says

About $8 billion of the project backlog is slated to start up in or after 2016, the future offspring of a domestic boom that has seen oil production grow 15 percent per year and natural gas grow about 10 percent per year, according to Deutsche Bank.

“What that production in the United States or in North America means is that the capital that goes into drilling those wells, the capital that goes into building the infrastructure to accommodate the movement and storage of that, that’s being done here in the United States,” Kean said during a Barclays energy conference on Sept. 12. “That’s why there is $100 billion of capital that needs to be deployed in this business.”

Overall, the infrastructure needs of the U.S. – whether that’s transporting natural gas from the Eagle Ford to the Houston Ship Channel or from the Marcellus Shale to other markets – represent “vast opportunity” for growth at Kinder Morgan, which owns 70,000 miles of natural gas pipeline across the country, Kean said.

But Kinder Morgan isn’t even spending an outsized portion of the pipeline industry’s investments. Major midstream companies are putting a combined $30 billion into capital expenditures this year alone, driven by the advent of U.S. shale plays and infrastructure needs, said Curtis Launer, an analyst at Deutsche Bank.

About half of that capital is going to crude oil transportation and the rest split between natural gas and natural gas liquids, he added.

“On the one hand, you can say Kinder Morgan isn’t spending as much on a percentage basis,” Launer said. But as the largest natural gas pipeline player, “the incremental capital they spend on new projects is more productive. They can spend less and get more.”

Up north: Kinder Morgan forms joint venture to build in shale regions

Kean’s comments come two weeks after Kinder Morgan’s stock took a hit from news that a research firm would release a damaging report on the company. On Sept. 4, the company’s stock fell 6 percent to $35.30 per share, and has hovered in that range since then.

Hedgeye Risk Management, a New Haven, Conn.-based research firm, claimed in its report that Kinder Morgan is “starving” its pipeline maintenance capital expenditures. But other firms contend the company’s maintenance capital expenditures are in line with its peers. Kinder Morgan books about 6 percent of earnings before interest, taxes, depreciation and amortization in maintenance spending, Theodore Durbin, an analyst with Goldman Sachs, noted in a report.


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