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Undaunted by Commodity Prices, Kinder Morgan More Bullish on Midstream

When commodity prices are in decline, executives at Kinder Morgan Inc. get even more bullish about opportunities in the midstream sector.

During a third quarter earnings conference call Wednesday, CEO Rich Kinder was asked by an analyst who follows the company about talks with producers related to midstream capacity commitments.

"...[W]e don't see much change as a result of lower prices," he said. "In fact, you could make a contrary argument that a lower deck of prices on crude and NGLs [natural gas liquids] will have a positive effect on people ramping up petrochemical usage in the months and years to come."

However, in the company's carbon dioxide (CO2) business, which supports producers' enhanced oil recovery activities, lower price pain is more likely, but not yet, Kinder said. It will vary by producing field and producer, he said. "...CO2 floods are certainly economic at prices well below where the current price of oil is, and so that's, I think, certainly something that we will watch very carefully on a going-forward basis...But so far, this is not a big issue for us in terms of what's moving forward with our projects in our view at this time."

As Kinder Morgan's project backlog grows, capacity demand on the natural gas side has been coming from shale plays, future liquefied natural gas (LNG) exports as well as exports to Mexico. The buildout frenzy can look forward to more action on the demand side as gas-fueled power generation activity ramps up, said COO Steve Kean.

Kinder's natural gas business added on a net basis $100 million to its project backlog, which includes the entry to service of about $270 million worth of projects previously counted in the backlog, he said.

"We continue to see strong demand for natural gas infrastructure...We've seen it in the shales, LNG exports and Mexico," Kean said. "...So the trends that we've been talking about for a long time are now turning themselves into long-term firm transport commitments.

"And that's just mostly the supply side and some LNG and Mexico exports; that's before we've really seen the demand side of this picture with power conversion in the U.S. and industrial and [petrochemical demand] on the U.S. Gulf Coast. And to illustrate that point, if look at our backlog you don’t see anything in there, for those developments yet to come just yet, but we can see them over the horizon."

Among the gas projects in the company-wide backlog, producers-push projects account for about $800 million related to shale plays, he said. "What I’ll call first party LNG, which is really the Elba Island and related transportation expansions, about $1.6 billion. What I’ll call second party LNG, which is where we’re investing in infrastructure to serve other peoples LNG facilities is another $750 million."

Mexico accounts for more than $900 million worth of projects, and gathering and processing in the Eagle Ford Shale accounts for another $300 million.

At the beginning of the quarter Kinder had an overall project backlog worth $17 billion. It had grown to $17.9 billion by the end of the quarter, including the effect of completed projects. "To me this growth demonstrates once again the demand from midstream energy infrastructure in North America and the size of our backlog, together with the enormous footprint of our pipeline and terminal assets is the best predictor of future growth at KM in my judgment," CEO Kinder said.

Third quarter profit at Kinder Morgan Energy Partners LP was $976 million, up from $697 million in the year-ago quarter.

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