How Kinder Morgan is making the transition to the energy future
Kinder Morgan (NYSE: KMI) is currently one of the largest energy infrastructure companies in North America. It operates 70,000 miles of gas pipelines, nearly 10,000 miles of petroleum and refined products pipelines, and has a large storage footprint. Most of its assets transport, process and store fossil fuels, essential to support the US economy.
However, the economy is slowly shifting towards cleaner fuel sources. This could impact Kinder Morgan’s business for years to come, unless she joins the transition. The company’s management team responded to these concerns during its recent fourth quarter conference call. Here’s what they had to say about the company’s plans for the energy market transition.
Focused on the cleanest fossil fuel
Kinder Morgan is already one step ahead of many fossil fuel-focused companies, as it generates the majority of its revenue by operating natural gas infrastructure. This is essential because it is a cleaner fuel and its increased use is important for reducing greenhouse gas (GHG) emissions. This is also why electric utilities invest in new natural gas power plants.
These factories currently have a competitive advantage over renewable energy in that they produce stable electricity. On the other hand, renewable energies can be intermittent because the sun does not always shine and the wind does not always blow. However, as battery storage costs decline, this competitive advantage will wane.
Yet, as CEO Steve Kean said on the call, the company’s large-scale natural gas business “will continue to be necessary to meet domestic needs and export facilities for a long time to come.” to come and continue to reduce GHG emissions as we expand its use around the country and the world. “In the short term, the value of this business” increases as intermittent resources are used for the production of electricity ”because“ natural gas is clean, affordable and reliable. And pipelines deliver this product in the safest, most efficient and most environmentally friendly way. ”
Towards the energy transition
While natural gas will remain vital to the economy for a long time, Kinder Morgan is already looking to the future of energy. Kean noted that:
Among the energy transition activities in which we are involved today is also the management of the storage and blending of liquid renewable transport fuels in our pipeline and product terminal segments. We have been using ethanol and biodiesel for a long time. Today we process about 240,000 barrels per day in a 900,000 barrels per day ethanol market, for example. We also manage renewable diesel today. This is part of our business which is ripe for expansion with attractive returns.
As the CEO notes, Kinder Morgan has already started shifting some of its liquid assets to renewable fuel sources such as ethanol, biodiesel and renewable diesel. This is starting to open up new opportunities for expansion.
For example, it is investing $ 18 million to expand its market-leading Argo ethanol hub to add 105,000 barrels of ethanol storage capacity and improve the system’s ability to load this fuel into. transport vessels such as rail and barges. Meanwhile, as demand for these fuels increases, the company should be able to leverage its existing footprint to seize further expansion opportunities.
Kinder Morgan sees several other adjacent opportunities to participate in the energy transition in addition to what it is already doing. Kean said that:
Breaking out of the next concentric circle of opportunity is a set of things where we can make extensive use of our existing assets and expertise. These include things like mixing hydrogen into our existing natural gas network and transporting and sequestering CO2. Another step would be the companies we could participate in if the yields are attractive, such as hydrogen production, renewable diesel production and carbon capture from industrial sources and power plants.
Hydrogen could be a huge opportunity because it could eventually replace natural gas as a zero emission fuel source. In addition to this, the company already has expertise in the transportation and sequestration of carbon dioxide as it uses this greenhouse gas to produce oil from historic fields in Texas. Thus, it is well positioned to potentially capture it from industrial sources and use it for oil production, or sequester it in abandoned oil and gas fields to reduce the economy’s carbon footprint.
As the company plans to participate in the energy transition, Kean clarified one thing: “[A]s always, we will be disciplined in investing when returns are attractive in transactions that we are confident we can build and manage safely, reliably and efficiently. He said the company “will not pursue press releases” because “energy transitions for a variety of reasons take a long time.” The company plans to “watch carefully as we lead” and “will evolve to meet challenges and opportunities “.
A key theme to watch for in the years to come
Kinder Morgan is currently focusing on the infrastructure needed to transport and store essential fossil fuels to support the economy. However, he is well aware that the economy is moving towards cleaner fuel sources. This is why it is also starting to develop its activities to support the future of energy.
Although taking small steps now, Kinder Morgan will need to continue to make progress to keep up with this shift, which investors should watch closely for years to come.
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