Kinder Morgan Q1 Preview: Expect Higher Natural Gas Transport Volumes

Kinder Morgan Energy Partners (NYSE:KMP), one of North America’s largest mid-stream energy companies, is expected to publish its Q1 2014 results on April 16. The company’s performance over the last few quarters has been driven by acquisitions in its natural gas pipelines division as well as strong oil production volumes in the CO2 business. In Q4 2013, the company’s revenues grew by around 29% year-over-year to about $3.47 billion while net income increased 26% to $809 million. Below we take a look at some of the factors to watch, and what to expect from the company’s natural gas and products pipelines business when it releases earnings.

Trefis has a price estimate of $83 for KMP, which is slightly ahead of the current market price.

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Natural Gas Pipelines: Throughput Could Increase On Colder Weather

KMP’s natural gas pipeline throughput saw a slight decline through last year due to higher gas prices, which slowed down demand from the electricity generation sector. ^[1] However, we believe that the trend could see a reversal this quarter, as the United States saw one of the coldest winters in the last four years, with heavy snowfall in the north and central parts of the country. This boosted natural gas consumption for heating purposes in the residential and commercial segments. According to the U.S. Energy Information Administration, total natural gas consumption in January 2014, which is the most recent data available, rose to around 3,005 billion cubic feet (bcf) from around 2,668 bcf a year ago. ^[2] Among the company’s pipelines, we will be watching the performance of the Tennessee Gas pipeline (TGP) and the El Paso Natural Gas (EPNG) system. The TGP is expected to have seen strong shipping demand driven by growth in the Marcellus and Utica Shale plays as well as from some expansion projects that began operating during Q4 2013. The EPNG system could see strong volumes aided by gas exports to Mexico.

Products Pipeline Business: Watching The Crude and Condensate Pipeline

KMP’s products pipelines business primarily transports refined petroleum products such as gasoline, diesel fuel, jet fuel and natural gas liquids from refineries to terminals, distribution centers and airports across the United States. While the consumption of liquid fuels in the U.S. grew by around 2.1% in 2013, volumes are expected to remain relatively flat this year. ^[3] However, we believe that Kinder Morgan could see some  year-over-year transportation volumes growth, particularly from its Crude and Condensate pipeline.

The Crude and Condensate pipeline extends from the liquids rich Eagle Ford Shale in South Texas to the Houston ship channel. The shale has been witnessing a sharp increase in oil production, with volumes soaring from around 123,000 barrels per day in 2010 to around 1.2 million barrels per day in December 2013. ^[4] The production from the shale is expected to exceed 1.5 million barrels per day by 2015 and this could bode well for shipment volumes for pipeline operators in the region (see Why The Crude and Condensate Pipeline Is Important To Kinder Morgan).

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1. KMP 2013 Form 10-K [↩]
2. Natural gas consumption in the United States, EIA , March 2014 [↩]
3. U.S. Petroleum and Other Liquids, US EIA, April 2014 [↩]
4. New Frontiers: Eagle Ford vs. Permian, the great Texas oil showdown, Platts, February 2014 [↩]