Kinder Morgan(NYSE: KMI) currently makes most of its money supporting the natural gas market (64% of its current business mix is natural gas-related). However, the company has a meaningful carbon dioxide segment (10% of its earnings). That business could grow into a much larger future contributor for the midstream giant.
Fueling that view is the potentially massive opportunity for carbon capture and storage, which oil major ExxonMobil(NYSE: XOM) forecasts will grow into a $4 trillion global market by 2050. Here's a look at why Kinder Morgan believes it's in an excellent position to capture a slice of that enormous opportunity.
Drilling down into carbon capture's potential
Carbon capture, utilization, and sequestration (CCUS) could play a vital role in helping reduce global emissions. Current technology can capture the greenhouse gas from emission sources or pull it directly from the atmosphere. The captured carbon dioxide can then be utilized (e.g., for enhanced oil recovery [EOR]) or sequestered underground.
The U.S. doesn't currently capture much carbon dioxide. However, that could change in the future as more companies invest in the technology. According to some estimates, the U.S. has the potential to significantly increase its carbon capture capacity over the coming decades:
Image source: Kinder Morgan.
Energy companies like ExxonMobil believe that providing decarbonization services could become a very lucrative business. Exxon has already started to seize this opportunity. In 2022, it signed the largest-of-its-kind commercial agreement to capture and permanently store up to 2 million metric tons of carbon dioxide per year from one of CF Industries' manufacturing complexes in Louisiana. Exxon will transport the captured carbon dioxide through pipelines operated by EnLink Midstream. Exxon has since signed a couple more commercial agreements with carbon emitters and bulked up its carbon capabilities by acquiring Denbury Resources, a leader in EOR and carbon dioxide infrastructure. Exxon now has 1,300 miles of carbon dioxide pipelines and 15 strategically located onshore storage sites.
Taking steps to capture this opportunity
Kinder Morgan also has extensive carbon dioxide infrastructure:
Image source: Kinder Morgan.
The company's integrated operations produce carbon dioxide from naturally occurring source fields. It transports the gas to legacy oil fields in the Permian Basin, where Kinder Morgan and third parties inject it into those fields to produce oil through EOR. The company's carbon dioxide business generates lots of free cash flow.
Kinder Morgan believes it can leverage its expertise in carbon dioxide and existing infrastructure to become a major player in the emerging CCUS market. The company and a partner have already started construction on a carbon capture project that they expect to complete later this year. Kinder Morgan is investing about $50 million into the venture, which will capture carbon dioxide from two natural gas-treating facilities in Colorado. It will then move the gas through its Cortez pipeline to an existing sequestration site in the Permian Basin.
Kinder Morgan believes its existing infrastructure and expertise put it in an excellent position to capture future CCS opportunities. According to one industry estimate, the U.S. will need to invest nearly $225 billion through 2050 in building about 70,000 miles of pipeline to transport carbon dioxide to sequestration and utilization sites. Meanwhile, the country will need to invest another $80 billion in developing those storage sites. Kinder Morgan has the expertise and existing infrastructure in both areas, which should give it a leg up on capturing future investment opportunities.
A potential sizable long-term growth driver
Kinder Morgan is already a leader in transporting and utilizing carbon dioxide for its EOR business. That gives it all the tools necessary to become a leader in the emerging CCUS sector. It could be a major long-term growth driver for the midstream giant, potentially giving it lots of fuel to increase its high-yielding dividend in the future.
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Matthew DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
