Kinder Morgan Inc (KMI): The Opportunity

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Kinder MorganKinder Morgan Inc (NYSE:KMI) is the country’s third-largest energy company by enterprise value. The partnership has an incredibly diverse asset base that targets some of the most important oil and gas plays in the United States, including the Permian Basin and the Eagle Ford Shale. All told, the company operates more than 75,000 miles of pipeline and 180 terminals.

Being on top doesn’t make it any easier to stay there, and the midstream market is becoming increasingly competitive. However, I think Kinder Morgan is one of the best midstream investment options out there, and I created a premium report on the company to help guide investors on whether it merits consideration for their portfolios.

Following is an excerpt from the report, laying out the company’s opportunity. We hope you enjoy it.

The Opportunity
Kinder Morgan Inc (NYSE:KMI) is a holding company. It forgoes the direct ownership of assets, and instead makes its money by owning stakes in the other Kinder Morgan companies: Kinder Morgan Energy Partners LP (NYSE:KMP)Kinder Morgan Management, LLC (NYSE:KMR), and El Paso Pipeline Partners, L.P. (NYSE:EPB). It also owns a 20% stake in a natural gas interstate pipeline called NGLP.

On a rare occasion, such as now, Kinder Morgan Inc (NYSE:KMI) will own assets, albeit briefly, with the intent to drop them down to either KMP or EPB. For example, KMI purchased the assets of El Paso during that acquisition and is in the process of selling them to the other Kinder Morgan companies.

But really, Kinder Morgan Energy Partners LP (NYSE:KMP) is KMI’s primary asset. Kinder Morgan Inc (NYSE:KMI) owns the general partner and incentive distribution rights in KMP, but it also owns 11% of the limited partner units, and together its ownership in KMP amounts to more than 95% of KMI’s cash flow. In other words: When Kinder Morgan Energy Partners LP (NYSE:KMP) makes money, so does Kinder Morgan Inc (NYSE:KMI).

In many ways, the Kinder Morgan family is at the top of the midstream heap. It operates the largest natural gas network in the U.S., controlling 75,000 miles of pipeline with assets in every major natural gas play. With 180 terminals, it is the largest independent terminal operator in the States as well. It is the largest independent transporter of petroleum products and carbon dioxide. And, despite the fact that pipelines and terminals are its bread and butter, Kinder Morgan is also currently the fifth-largest oil producer in the state of Texas.

The partnership has considerable assets in Texas and Florida. These regions are particularly important to natural gas pipeline operators because they are the two top markets in the country for natural-gas-generated electricity. In the U.S., the use of natural gas in power generation rose 14% between 2008 and 2011. By March of 2012, the power sector was consuming an unprecedented level of natural gas. However, by March of 2013 the price of natural gas had risen to $4.00 per MMBtu, resulting in a 16% decline in natural gas usage.

Despite this, volumes for gas-fired power generation on EPB’s Southern Natural Gas system were up 4% in the first quarter, hammering home the importance of connecting to the right markets. Ultimately, the geographical breadth of Kinder Morgan’s asset footprint cannot be underestimated if this trend continues.

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