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Stock Analyst Update

Kinder Morgan Benefits From Strong Commodity Tailwinds

After strong first quarter, the company is seeing benefits across its business.

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Kinder Morgan’s (KMI) first-quarter results were strong, as tight oil and gas markets contributed to strength across multiple areas of its business. The results are on track to modestly exceed the firm's $7.2 billion 2022 EBITDA outlook compared with our already higher $7.3 billion forecast. The potential upside should be tempered by uncertainty about inflationary headwinds (fuel and steel costs), but we consider our estimate reasonable. We don’t plan to change our fair value estimate or narrow moat rating.

Excluding one-time impacts from winter storm Uri, Kinder Morgan is seeing benefits across its business: higher demand for storage, the recent Stagecoach acquisition already ahead of expectations, higher liquefied natural gas demand at its Elba terminals due to the Russia-Ukraine war, and demand for new Permian gas takeaway pipes.

Kinder Morgan is now seeking contracts to expand its Permian Highway and Gulf Coast Express pipelines via compression, which can add 1.2 billion cubic feet per day of capacity at minimal cost and be on line in potentially 18 months. This would push back the need for a greenfield pipe from Kinder to 2026. However, this compression option is also competing with numerous other pipe proposals, notably from Energy Transfer, so it remains to be seen what shippers will support as the best combination of low cost and speed to market.

Kinder also filed a proposal with the Federal Energy Regulatory Commission to implement a responsibly sourced gas pooling service across its Tennessee Gas Pipeline system. The service will allow suppliers and customers on TGP to buy and sell RSG and more effectively serve utilities, power plants, and LNG terminals connected to the system. Kinder estimates up to a third of U.S. gas could qualify as RSG, presenting a solid environmental, social, and governance-related opportunity for Kinder to capture fees related to storage, transportation, and other services.

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Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.