Kinder Morgan (KMI, Financial) has announced that it was planning another expansion along a pipeline linking its natural gas system to Mexico.
Kinder Morgan is the third largest energy company in North America, headquartered in Downtown Houston. The company owns an interest in or operate approximately 84,000 miles of pipelines and 180 terminals, with an enterprise value of approximately $130 billion.
Kinder Morgan eyes expansion of natural gas pipeline in Mexico
If Kinder Morgan moves forward, the expansion would add another 200 million cubic feet of capacity along the Mier-Monterrey pipeline, which runs 95 miles from the U.S.-Mexico border near Starr County, Texas to Monterrey, Mexico. It would add a new compressor station near Cerralvo, Nuevo Leon, Mexico and boost total capacity along the line to 840 million cubic feet per day.
Between April 27 and May 11 Kinder Morgan intends to seek commitments from shippers for new pipeline capacity. If there is approval from shippers, the company would most likely start the $38 million upgrade with a completion date of mid 2017.
The expansion of the Mier-Monterrey pipeline by the company has resulted in a capacity of 640 million cubic feet per day, which was initially designed and brought into service in 2003, to transport up to 375 million cubic feet of gas per day. The pipeline connects to Pemex’s natural gas transportation system, Mexican national oil company, as well as with a 1,000-megawatt power plant complex.
Mexico has become a prime destination for U.S. gas because of a sweeping regulatory reform that has been gaining momentum since 2014. Regulators are in a lookout for natural gas in order to supply cleaner and more economical electricity to consumers.
Kinder facing opposition to proposed Trans Mountain expansion project
There is increasing opposition in British Columbia to Kinder Morgan’s proposed pipeline expansion project. Richard Kinder, chairman and CEO of Kinder Morgan, has made it clear that his company will go ahead with construction starting in the summer of 2016, if the project gets Ottawa’s approval.
In November 2014, Kinder Morgan cut down several trees and prepared to do exploratory drilling on the site, which led to a lot of protests from hundreds of people in Burnaby Mountain for the next two months.
The company is surprised at the opposition since it involves doubling an existing pipeline, and the project is expected to generate jobs and over $300 million in tax revenue for B.C.
The $5.4 billion TransMountain expansion is supposed to triple its capacity to 890,000 barrels of oil a day and is concentrated in the last 30 miles of the right of way, or in the province’s Lower Mainland area around Vancouver.
The company hopes to get the required permit from Canada and expects the National Energy Board to rule January 2016 on whether the expansion is in public interest. After that there are 90 days for the federal cabinet to come to a conclusion.
Kinder hopes to kick-start the project and see it in service in the third quarter of 2018.
What to look forward in Kinder Morgan?
Kinder Morgan is undoubtedly on an expansion spree. For 2015, the company is estimating that every $1 per barrel change in average WTI crude oil price will affect its distributable cash flow by roughly $10 million, and each $0.10 per million BTU change in the regular price of natural gas will affect distributable cash flow by approximately $3 million. Kinder expects to have noteworthy excess coverage in 2015, even after fine-tuning for current commodity prices.
The company said in its outlook discussion that it expects to pay a total fiscal year dividend of $2.00 per share in 2015, a 15% increase compared with the 2014 dividend of $1.74. Kinder Morgan stated it would boost the dividend at an annual growth rate of 10% over the next five years. This is good news for dividend growth investors who are interested in safe and secure income sources.
Changes in laws or regulations, major setbacks and adverse results of litigation or the project's approval may slow down the company's growth. But at the moment, Kinder looks stable and formidable in the market.
