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Mexico, LNG, Lifting Kinder Morgan Throughput as Permian Awaits

Increased natural gas transport volumes helped to lift Kinder Morgan Inc. (KMI) results during the first quarter as the company looks ahead to opportunities on the gas side from liquefied natural gas (LNG), exports to Mexico, as well as new Permian Basin takeaway capacity.

KMI’s gas transport volumes were up 1% compared to the year-ago quarter. Throughput was higher on Tennessee Gas Pipeline as projects entered service. Deliveries to Cheniere Energy’s Sabine Pass LNG terminal raised volumes on NGPL, as did deliveries to south Texas to supply gas to Mexico. The Texas Intrastate Pipelines also had higher throughput, as did El Paso Natural Gas Pipeline because of colder weather in California, KMI said.

“The increases were partially offset by lower throughput on the TransColorado pipeline due to lower Rockies production, as well as lower throughput on Cheyenne Plains due to fuel switching back to coal and on SNG due to a historically warm winter in the region,” the company said.

Gas gathering volumes were down 15% from the year-ago quarter because of lower volumes out of the Eagle Ford Shale and the company’s KinderHawk system.

Expectations are that activity will be picking up in the Haynesville Shale, CEO Steve Kean told analysts during a conference call Wednesday afternoon. KMI has added a new customer in the play that is “actively developing its acreage,” he said.

Last month KMI announced a nonbinding open season for the proposed Gulf Coast Express Pipeline and later said that DCP Midstream LP had signed on as a partner and shipper in the project. Gulf Coast Express would transport up to 1.7 Bcf/d of gas from Waha to Agua Dulce, TX, providing an outlet for increased production from the Permian Basin to markets along the Texas Gulf Coast.

During the conference call, Kean said the company was in talks with DCP about joining the project before it was announced. Adding DCP to the mix gives KMI upstream connectivity in the Permian through DCP’s pipeline and processing assets in the basin.

“And then we have downstream connectivity from all the market that we connect to on what we think is the best intrastate system in Texas, connecting to LNG, Mexico, etc.,” Kean said, adding that KMI is seeing “enthusiasm” for the Gulf Coast Express open season but noting that it’s nonbinding. Interest is expected to come from not only producers wanting to get out of the Permian but from downstream markets as well, he said.

“Getting to Agua Dulce didn’t used to be a very big deal. You were just in South Texas,” Kean said. “If you’re in Agua Dulce and connected to our system, you can go to Mexico or you can go to Corpus Christi or you can go to Houston; then you’ve really got something.”

KMI cited projections that U.S. gas demand, including exports, will increase by about 35% to about 107 Bcf/d over the next 10 years. About 40% of the gas consumed in the United States moves on KMI pipelines.KMI said natural gas infrastructure opportunities will come from increased demand from power plants, LNG exports, exports to Mexico, and continued industrial development, particularly in petrochemicals.

During the first quarter, gas deliveries on KMI pipelines to Mexico were up by 16%, or about 391,000 Dth/d. Deliveries to LNG facilities were up by about 548,000 Dth/d.

KMI reported first quarter net income of $401 million, compared to $276 million for the first quarter of 2016, and distributable cash flow of $122 billion, which was essentially flat versus $1.23 billion for the comparable period in 2016. Net income was affected by a $162 million favorable change in total certain Items compared to the first quarter of 2016. Certain Items in that quarter were primarily driven by project write-offs and losses on impairments and divestitures, partially offset by a favorable non-cash interest expense certain item.

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