Kinder Morgan's(NYSE: KMI) co-founder and executive chair, Richard Kinder, knows the natural gas midstream space as well as anybody. He's helped build the company into the country's leader in natural gas infrastructure. Kinder Morgan operates 60,000 miles of gas pipelines (which move 40% of the country's gas production) and has interests in 702 billion cubic feet of working gas storage capacity (15% of the country's total). He's played a role in developing many of those assets over the years to help support the growing demand for gas.
That demand is stronger than ever, according to his comments on the recent third-quarter earnings conference call. This view drives the pipeline company's confidence that it should grow meaningfully for years to come.
Rich in opportunities
Richard Kinder led off Kinder Morgan's third-quarter conference call, as he always does, by providing an outlook on the natural gas market. He reminded listeners, "Over the past few quarters, I've talked about our view of the future demand for natural gas, with strong growth being driven by LNG exports, exports to Mexico, and electric generation." Those catalysts could add another 20 billion cubic feet per day (Bcf/d) of incremental natural gas demand by 2030 (from last year's level of 108 Bcf/d).
On top of that, a new catalyst is emerging. Kinder noted that the sector is "benefiting from the tremendous needs of AI and data centers."Data centers require an incredible amount of electricity, while those running AI applications need even more. That's driving the view that the country's electricity usage will surge, growing at a 2% to 4% annual rate through 2030. Kinder Morgan estimates this could fuel the need for 3-6 Bcf/d of additional gas demand, with the potential upside for 10+ Bcf/d.
The company believes these catalysts will substantially and positively impact its growth. Kinder commented, "In fact, in my decades of experience in the midstream arena, I've never seen a macro environment so rich with opportunities for incremental build-out of natural gas infrastructure." He expects the company to be a major player in developing the infrastructure needed to support growing gas demand. "As these projects come online, we should be able to grow our EPS, EBITDA, and DCF [distributable cash flow] on a consistent and sustainable basis for years to come," he said.
A growing list of projects in the pipeline
Kinder Morgan has already started capitalizing on the growing need for more gas infrastructure. Kinder discussed a couple of the projects it recently approved. He noted that "In July, we announced the approximate $3 billion South System Expansion 4 Project, which is underpinned by long-term shipper commitments and designed to increase our Southern Natural Gas south line capacity by approximately 1.2 Bcf per day, helping to meet growing power generation and residential commercial demand in the Southeastern U.S. market." The company will fund $1.7 billion of the project's cost. It expects the expansion will enter commercial service in late 2028.
Meanwhile, "Today, we are announcing the expansion of our GCX system in Texas, which will enable our customers who have signed long-term throughput agreements to move substantial additional gas out of the Permian Basin," he said. The company will fund $161 million of the $455 million project, which should enter service by the middle of 2026.
The company "expect[s] to announce additional significant projects over the next several months that will allow us to expand and extend our network to better serve the needs of our customers and benefit our bottom line," stated the co-founder on the call.
CEO Kim Dang discussed some of the opportunities on the call. "Current discussions on power opportunities total well north of the 5 Bcf a day we mentioned in the second quarter. Our internal number for growth in the overall natural gas market is roughly 25 Bcf a day over the next five years." She then ran through a myriad of factors driving this demand. On the power side, population and business migration to the southern half of the country is driving increased energy demand in already tight markets.
Meanwhile, the CHIPS act, lower raw materials prices, and national security are driving onshoring and nearshoring of manufacturing. On top of that, renewables growth is driving gas demand to offset their intermittency. "And of course, data center demand has skyrocketed," Dang said. "Regardless of the demand driver, one project often creates a need for a subsequent project."
Dang noted that the company has a few very large projects under development in the $1.5 billion-$2 billion range. However, most are smaller "singles and doubles." While the company won't capture all these projects, and the larger ones will take a while to come to fruition, "the opportunity set has continued to increase over the course of this year, and the conversations are becoming more focused and specific."
Lots of fuel to grow
Kinder Morgan's co-founder has never seen such a rich opportunity to expand the business. Multiple demand drivers are fueling the need for a lot more gas in the future, which means the country will need more gas infrastructure. As a leader in the space, Kinder Morgan is in a prime position to capitalize on this opportunity. It should power meaningful growth for the company in the coming years, making it look like a great stock to buy for the long term.
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Matt DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
