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Kinder Morgan Sticking to Pipes, Storage for LNG Growth Opportunities

Kinder Morgan Inc. (KMI) may be looking to modify its existing Gulf Coast liquefied natural gas (LNG) import terminal in Jackson, MS, to accommodate exports, but the midstream operator knows its “very low risk and high reward opportunity” in the export space is through the massive upstream gas transportation and storage network that serves third-party facilities, CEO Steve Kean said.

Speaking at the Barclays CEO Energy-Power Brokers Conference Wednesday in New York City, Kean said KMI supplies around 42% of the more than 3 Bcf/d in current U.S. liquefaction capacity. The company has 1.1 million Dth/d contracted on Tennessee Gas Pipeline, another 1.635 million Dth/d on Natural Gas Pipeline Co. of America and 600,000 Dth/d on Kinder Morgan Louisiana Pipeline, as well as capacity on other lines.

With more than 10 Bcf/d of U.S. LNG export projects awaiting final investment decisions, under construction or in service, the midstream company has multiple projects underway to capture more growth. Among those projects is the Elba Liquefaction Project, which includes a total of 10 liquefaction units with liquefaction capacity of about 2.5 million tons/year (mmty), equivalent to about 350 MMcf/d.

The first of the units is expected to be online later this year, with each subsequent unit then coming online 30-45 days sequentially. The final unit is expected to come online by mid-year or within the third quarter of 2019.

The federally approved liquefaction project at the existing Southern LNG Company facility at Elba Island near Savannah, GA, is supported by a 20-year contract with a unit of Royal Dutch Shell plc.

KMI is looking to structure its proposed Gulf LNG export facility similarly to the Elba Island terminal with a long-term off-take agreement with “someone who is willing to take on the risk and opportunity” and “place the molecules in the international market,” Kean said.

The proposed Gulf LNG project would consist of two trains, each with capacity of about 5 mmty. Once in operation, the liquefaction capacity could exceed the total base level of 10 mmty by more than 10%.

“There are a number of ways in which you can participate in LNG. We like the Elba model, and that’s what we’re looking for as a potential on our Gulf LNG facility,” Kean said. “We know how to build pipelines. We know how to expand our pipeline network, and it creates a very good opportunity for us.”

Beyond KMI’s current backlog, the company chief said there is a continued need for energy infrastructure investment, estimated to be “more than $400 billion over the next 20 years in natural gas alone.” Storage, in particular, is going to become increasingly valuable despite the current relative flatness in the gas market, he said.

KMI owns and operates the Young Gas storage facility in Morgan County, CO, as well as Keystone Gas Storage in the Permian Basin, near the Waha hub in West Texas.

Gas storage increasingly will be relied upon as the United States grows its LNG exports, according to Kean. While the use of storage for LNG will likely not necessitate the “every day day-in and day-out movement of the commodity,” the need for storage will still exist. “We have a great storage position. We believe that should continue to see increased value over time.”

In markets like California, where a transition to increased renewables has taken place, there is a need for “reliable backup” and more “peak deliverability” because of the variability of alternative energy sources like solar and wind, Kean said.

“As you look at the intermittent sources on which the power market is increasingly relying on in the form of renewable power, we believe the combination of our transportation assets and our storage assets allows us to sell a different product to our market. And that product is deliverability,” he said.

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