Kinder Morgan to target brownfield expansion for Permian takeout capacity

Strong points

Possible compressor extensions on PHP, GCX pipelines

Expected 18-month timeframe; could enter service Q4 ’23

Would add up to 1.2 Bcf/d in Permian takeaways

Kinder Morgan is in talks to increase capacity on its Permian Highway pipeline and Gulf Coast Express pipeline by up to 1.2 Bcf/d as early as the fourth quarter of 2023, executives said on the first quarter earnings call. the company’s 2022 quarter on April 20.

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The company would add power to existing compressor stations as well as a “small amount of [pipeline] on a loop,” said CEO Steven Kean.

Executives said the expansion work could potentially be completed within 18 months of the contracts being concluded and the FID being taken, which shippers say is key to meeting expectations for increased production of the Permian Basin.

Increasing the capacity of existing pipelines has become an increasingly popular option for pipeline developers who are wary of costly delays arising from the permitting process and legal challenges. Recent brownfield expansion projects, such as Williams’ Leidy South expansion on the Transcontinental Pipeline, have largely avoided the kind of protracted legal wrangling that has plagued greenfield projects, such as the Mountain Valley Pipeline.

These benefits have not been lost on Kinder Morgan’s leadership, with Kean noting that “compression extenders enable rapid time-to-market” and “one of the great things [about brownfield pipeline expansion projects] is that they are very light.”

“We believe we can avoid issues that otherwise would not trigger more active federal review by the Corps [of engineers] or anyone else, and there are good mitigations built into our plans to avoid endangered species, to avoid open water crossings, and so on. said Kean.

Kinder Morgan is also considering a new pipeline to deliver Permian gas to Gulf Coast demand markets, executives said, but on an estimated timescale of 2026.

Prospects for Permian production

Through mid-April, Permian gas production averaged just under 13.8 Bcf/d, down about 140 MMcf/d from its fourth quarter 2021 average. , according to data from S&P Global. In recent months, however, Permian operators have continued to expand their drilling footprint with the addition of nearly 40 rigs since early January. As of the end of the week of April 13, the number of Permian platforms is now estimated at 337, marking its highest level since April 2020, according to data published by Enverus.

In March, around 362 new wells were drilled in the Permian – also the most since the first quarter of 2020, according to new data released on April 18 by the US Energy Information Administration. Over the past four months, well completions are also up, hitting 433 in March to reach their highest level in 12 months, according to the latest EIA drilling productivity report.

Based on recent activity, S&P Global’s updated Permian production forecast shows production to increase to as much as 2 billion cubic feet per day in 2022, potentially reaching 16 billion cubic feet per day in early next year. While production is expected to grow more slowly in 2023, it could reach 17 Bcf/d by the fourth quarter, according to current projections.

With midstream capacity currently estimated at 17 billion cubic feet, analysts predict that base price dislocations, flaring and other downward pressure on gas production would begin shortly thereafter, absent a significant expansion of West Texas midstream capacity. With the U.S. Gulf Coast offering some of the most attractive spreads for Permian shippers, brownfield expansions of the Permian Highway Pipeline and Gulf Coast Express could provide a runway for Permian growth well into the mid-1990s. 2020.

Financial results

For the quarter ended March 31, Kinder Morgan reported net income of $667 million, or 29 cents per share, up from net income of $1.409 billion, or 62 cents/share, for the corresponding quarter. of the previous year.

Kinder Morgan’s earnings in the first quarter of 2021 were significantly boosted by the February 2021 deep freeze event, the company said in an April 20 statement.

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