Based on combined enterprise value, Kinder Morgan Inc (NYSE:KMI) is the third largest energy company in North America. We tend to associate the giant with its 75,000 miles of pipelines, but in reality, its operations are incredibly diverse. Over the next few days, I’ll take a closer look at each of the midstream company’s five distinct business units. I’ve already tackled the terminals segment, and today we’ll break down the partnership’s natural gas pipeline business.
Background on the assets
Kinder Morgan, together with its master limited partnerships Kinder Morgan Energy Partners (NYSE:KMP) and El Paso Pipeline Partners, L.P. (NYSE:EPB) , operates an impressive 62,000 miles of natural gas pipeline, making it the largest natural gas transporter in the United States. The pipelines reach natural gas plays and serve major consuming markets from coast to coast but are concentrated heavily along the southern border of the U.S., from Arizona to Florida. Texas is the epicenter of the partnership’s footprint, yet it’s the company’s East region that’s expected to generate the largest percentage of earnings for the segment in 2013.
The East segment includes roughly all of Kinder Morgan Energy Partners LP (NYSE:KMP)’s pipes east of the Mississippi River, from Florida to New Hampshire, while the midstream segment designates the Texas intrastate system. West denotes everything west and north of El Paso Pipeline Partners, L.P. (NYSE:EPB), while Central includes everything west of the Mississippi and north of the Texas/Oklahoma border. You can check out the whole map here.
Overall, the segment grew 64% year over year in the fourth quarter of 2012 and $474 million in earnings. Much of that growth can be attributed to the booming Eagle Ford Shale play, and the increase of natural gas used for power generation. Kinder Morgan hopes to continue to drive success here and is in the midst of investing $2.7 billion in its natural gas pipeline assets.
A look ahead
A big part of that investment capital is headed straight for two shale plays: the Marcellus and the Eagle Ford. We’ll get to Texas in a minute, but first let’s tackle the Marcellus, where Kinder Morgan Energy Partners LP (NYSE:KMP) has two of similar looping projects on the Tennessee Gas Pipeline system coming online by the end of November.
The first project is the Marcellus Pooling Point project, an $86 million pipeline expansion that will loop a line in northwest Pennsylvania with 7.9 miles of 30-inch pipe. (Looping means that new pipe will be installed adjacent to the existing line.) It will also feature upgrades to four pumping stations. The new capacity comes in around 240,000 dekatherms per day, which is roughly equal to 2.3 million cubic feet of gas, and it will feed utilities and other connecting pipelines.
The second looping project is the Northeast Upgrade, and it is much more expensive at $450 million. This project will add about 40 miles of 30-inch looped line on the Tennessee Gas Pipeline system and will have a capacity of about 640,000 dekatherms per day, which is roughly equivalent to 6.2 mmcf per day.