Kinder Morgan Partners (
) is a subsidiary of Kinder Morgan Inc. that owns and operates
pipelines and storage terminals throughout the U.S. It operates in
five main business segments: Products Pipelines, Natural Gas
Pipelines, CO2, Terminals and Kinder Morgan Canada. KMP competes
with interstate and intrastate pipelines and their shippers for
attachments to new markets and supplies as well as for
transportation, processing and treating services. The company faces
direct competition from other pipeline and energy companies
like Enterprise Products Partners (
), Williams Companies, Inc. (
) and from pipeline subsidiaries of energy giants like
the ExxonMobil Pipeline Company of the
Coverage Launch $79 Price Estimate for Kinder Morgan
We recently launched coverage on Kinder Morgan Partners with a
$79 price estimate for the company's stock, which is about a 10%
premium over its current market price. We have broken down our
analysis of Kinder Morgan along its main business divisions.
Natural Gas Pipelines
4. Product Pipelines
5. Kinder Morgan Canada
Natural gas pipelines division is the most valuable for
The Natural Gas Pipelines segment contains both interstate and
intrastate pipelines. Its primary businesses consist of natural gas
sales, transportation, storage, gathering, processing and treating.
Within this segment, KMP owns approximately 15,500 miles of natural
gas pipelines and associated storage and supply lines that are
strategically located at the center of the North American pipeline
grid. With more than $4.4 billion, the division contributed more
than 50% to the company's revenues in 2010. The operating profit
from the division was close to $1 billion during the same period.
With the natural gas demand increasing steadily, we believe that
going forward this division will have a greater contribution to the
company's overall revenues and profits.
Key Business Trends
Demand and pricing
With the exception of periods of high product prices or
recessionary conditions, the demand for petroleum products are
relatively stable. Therefore, the company seeks to own refined
products pipelines located in or near stable or growing markets.
Pricing is based upon the tariffs that are adjusted annually based
on changes in the U.S. Producer Price Index.
Increase in fuel demand
According to the American Petroleum Institute, the overall
demand for fuel was approximately 5% higher for the first quarter
of 2011 compared to the same period in 2010. The demand for
distilled fuels (gasoline and diesel) grew by more than 15% during
the period. The trend is expected to continue for the next few
years as industrial output is expected to grow, in turn pushing up
pipeline product shipments.
Ethanol wall increased in U.S.
In October, 2010 the Environmental Protection Agency (EPA)
increased ethanol blending requirements from 10 percent to 15
percent of gasoline in the U.S. Such a move may push up ethanol
consumption by more than 5 billion gallons annually, which will in
turn result in an increase in ethanol shipments by KMP.
The shift towards natural gas
In the recent past, with the rapid discoveries of new reserves,
natural gas is gaining popularity. Natural gas when compared in
terms of energy equivalents, is as cheap as coal. Moreover it is a
cleaner fuel to burn with lower harmful emissions and is more
portable than coal. Hence large road transport fleet companies and
industries have already moved on to natural gas usage and this
trend is likely to continue considering the benefits.
See our full analysis for Kinder Morgan Partners