Kinder Morgan Energy Partners
), one of North America's largest midstream energy companies, is
scheduled to release its Q4 2013 earnings on January 15. The
company has been doing reasonably well over the last few quarters,
bolstered by recent acquisitions in its natural gas pipelines
division, higher oil production as well as growth in its products
pipelines and terminals businesses. In this note, we take a look at
some of the factors to watch and what to expect from the company's
largest business segments when it releases earnings Wednesday.
See Our Complete Analysis For Kinder Morgan
Trefis has a
price estimate of around $92 for Kinder Morgan
, which is about 15% ahead of the market price.
Natural Gas Pipelines: Higher Gas Prices Could Impact
Natural gas prices have seen an increase over the last year, rising
from levels of under $3.50 per million metric British thermal units
(MMBtu) during Q4 2012 to close to $4.50 per MMBtu currently.
This has had an impact on natural gas consumption across the United
States, particularly for electricity generation, since many power
producers have been shifting back to coal from natural
gas. According to the U.S. Energy Information Administration,
total natural gas consumption in October (the most recent data
available) fell from around 1,901 billion cubic feet in 2012 to
around 1,859 billion cubic feet. During the third quarter, KMP saw
its overall natural gas transport volumes decline to around
1,412 billion cubic feet (Bcf) from around 1,498 Bcf
in 2012. We expect that volumes could decline once again on a
year-over-year basis in the fourth quarter.
Co2 :Watching Oil Production Volumes From SACROC and
KMP's CO2 business produces oil and gas and also produces,
transports and markets carbon dioxide for enhanced oil recovery
(EOR) operations. While the CO2 supply business is expected to
remain flat due to capacity constraints, we believe that the oil
production business should do better given higher oil prices.
Although KMP's oil production growth has been commendable, with
volumes growing by close to 7% year-over-year through the first
nine months of 2013, there was some sluggishness during Q3 when
production from the company's two largest fields, the SACROC and
Yates, declined slightly sequentially. We will be closely watching
the company's production from these fields in Q4.
Terminals Business: Liquids Terminals, BOSTCO Should Drive
The terminals business is one of Kinder Morgan's most stable
business segments, thanks to its largely diversified and fee-based
business model. We expect the company's liquids terminals to
continue to perform well on the back of restructured contracts with
higher rates as well as strong utilization levels. During the first
nine months of the year, KMP's liquids terminals recorded a
utilization rate of close to 95%. However, things could remain
challenging on the bulk terminals front given that U.S. coal
exports have been on the decline.
Additionally, the segment's quarterly results could benefit from
the commencement of operations on the first phase of the BOSTCO
(Battleground Oil Specialty Terminal Company) terminal in which KMP
holds a 55% stake. The project, which is located on the Houston
Ship Channel is expected to see a lot of activity given the growth
in oil production from shale plays.
Products Pipelines: 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 overall U.S.
liquids fuels consumption has been relatively sluggish of late
(consumption declined by about 2% in 2012 and is expected to have
grown by just about 1.1% in 2013), KMP's products pipelines
recorded strong refined products transportation volumes growth in
the third quarter, rising by close to 6.5% year-over-year driven by
new capacity additions as well as a stronger performance on the
Cochin and Pacific operations. For this quarter, we will be
watching the performance of the company's crude and condensate
pipeline. The pipeline, which commenced operation in mid 2012 could
prove a long term growth driver for the business segment since it
originates from the liquids rich Eagle Ford Shale.
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