Emerging Giant: Kinder Morgan Reports

on July 21, 2011 at 11:00 AM

Natural gas assets and terminal ownership drove growth at one of the US’ emerging energy infrastructure giants.

Years of organic growth and acquisitions have lifted the already-significant Kinder Morgan Energy Partners into an increasingly central position in the US energy economy, and the firm’s exposure to the fast-growing natural gas production and distribution sectors put it at the heart of plans to grow US consumption and exports of that fuel.

Kinder Morgan has increased its cash distribution to shareholder in six consecutive quarters and 41 times since current management took over in February 1997, the company said in announcing total segment earnings of $1.73 billion for the first half of 2011 before depletion, depreciation and amortization charges.

The company spent $836 million to purchase Petrohawk Energy’s 50% interest in KinderHawk Field Services and it’s 25% interest in a natural gas and condensate gathering business in South Texas in a transaction that closed July 1. The deal involved more than 400 miles of pipeline, and management said yesterday they expect to earn an “attractive return well in excess of the company’s cost of capital.”

“We continue to see exceptional growth opportunities in the midstream energy sector, particularly in the natural gas shale plays and the coal export business,” Kinder Morgan CEO and Chairman Richard Kinder said in announcing the results.

Kinder Morgan has owned a variety of coal export and import terminals alongside its liquid handling terminals through the volatility of the international coal market, which saw a spike in coal imports to power plants during a short-lived period of high coal demand along the US East Coast before buying volumes collapsed.

In the past two years, US coal producers have begun exporting their product to the international market as domestic generators turned to natural gas and fast-growing economies in Asia spurred competition for the fossil fuel. Asset ownership in the terminal sector allowed Kinder Morgan to take advantage of that trend, and it says that coal volumes rose 12% in the second quarter of 2011 compared with the preceding year. The firm is preparing to ship Colorado coal out of its Houston terminal, an unusual move for the Western coal market.

Kinder Morgan is a significant player in the biofuels business as well; it handles roughly 30% of the ethanol used in the US. The ethanol business sector was less robust in 2011, with volumes falling by 900,000 barrels. The firm is still investing in its ethanol business, with $25 million in expansions planned. Kinder Morgan also has agreements in place that will underpin its plan to expand its biodiesel blending capabilities to supply terminals that are connected to Kinder Morgan’s Plantation and Central Florida pipelines.