Q3 2021 Kinder Morgan Inc Earnings Call
Okay.
Yes.
Good afternoon. Thank you for standing by and welcome to the quarterly earnings Conference call. Your lines have been placed on a listen only mode until the question and answer session of today's conference at that time, you May Press Star followed by the number one to ask a question. Please I.
Meet your phones and state your name when prompted today's conference is being recorded if you have any objections you may disconnect. At this time. It is now my pleasure to turn the call over to Mr. Rich Kinder executive Chairman of Kinder Morgan, Sir you may begin.
Before we begin I'd like to remind you as we always do that okay.
Our earnings release today and this call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and the Securities Exchange Act of 1934, as well as certain non-GAAP financial measures.
Before making any investment decisions, we strongly encourage you to read our.
Our full disclosures on forward looking statements and use of non-GAAP financial measures set forth at the end of our earnings release as well as review our latest filings with the SEC for important material assumptions expectations and risk factors that may cause actual results to differ materially from those anticipated.
And described in such forward looking statements.
Every quarter I open this call by talking about our financial philosophy at Kinder Morgan.
I always mentioned strong and consistent cash flow and explain how we use that cash flow to play to pay a healthy and growing dividend internally fund our expansion.
Capex needs and keep our balance sheet strong and opportunistically buyback our shares I believe our shareholders understand and appreciate the strength of our cash flow.
Even if there are various varied positions on what we should do with it but.
But in a broader sense, if we examine what owning a share of came out really.
[noise] amounts to I've come to believe as the largest shareholder that we are receiving a very good and growing yield on our investment while at the same time getting amazing Optionality on future development, let me explain that optionality.
We have entered the energy transition field with what I consider.
It would be solid investments, Steve and the team will discuss further in our cash flow gives us the ability to pursue those opportunities inside if and only if the investment to achieve a satisfactory return and I believe that if we so desire we will be able to attract new partners at the time of our choosing whether public.
Private to participate in those opportunities with us on terms favorable to K M I.
I also firmly believe that there is still a long runway for fossil fuels around the world, particularly for natural gas. If you read carefully the latest studies from the IEA OPEC.
And for.
Public or other energy expert you will see projections that fossil fuels will continue to supply the majority of our energy needs for at least the next quarter century, and then natural gas will be at the forefront of fulfilling those needs.
If these projections are anywhere close to accurate a company like Kim.
It varies with significant free cash flow will find significant opportunities to invest in this core business, where we have substantial expertise and a huge network that can be expanded and extended. So this is another option that you receive as a K in my shareholder.
I would add.
Mark that the events of this fall throughout Europe, Asia, and North America demonstrate that the transition to renewables is going to be a lot longer and more difficult than many of its proponents originally thought in short while the world makes the transition the lights need to stay on homes.
I need to be hated in our industrial production needs to be sustained.
Finally, we always have the option of returning dollars to our shareholders through selective stock repurchases. In addition to the healthy return we're providing through our dividend. This is why I say that an investment in K M. I provide you with a nice.
Sneaked in return with this dividend and then provides really good optionality for the future and with that I'll turn it over to Steve Alright. Thanks, Rich I'll give you an overview of our business in the current environment for our sector as we see it then our president Kim Dang will cover the outlook and segment updates our CFO David Michaels.
We'll take you through the financials and then we'll take your questions our financial principles remain the same first maintaining a strong balance sheet.
Long balance sheet helps us withstand setbacks and enables us to take advantage of opportunities over the last two years, we've seen both sides of that coin coming into 2020, we were better than our leverage target and that helped us.
Locker were hit with the pandemic related downturn.
Then this year, we saw the other side, where our extra capacity created as a result of our outperformance in the first quarter gave us the ability to take advantage of to acquisition opportunities.
We see both of those acquisitions is adding value of the firm.
Second.
So we're maintaining our capital discipline through our elevated return criteria a good track record of execution and by self funding. Our investments. We are also maintaining our cost discipline.
We have always been lean, but last year at this time, we were completing an evaluation of how we were organized and how we can work even more efficiently we implemented.
Whereas resulting in an estimated full year run rate efficiencies of about $100 million a year in that effort, we were aiming for something beyond efficiency greater effectiveness and we can see that coming through in the functions. We centralized under the leadership of our Chief operating Officer James Allen.
We are already seeing the benefits.
It changed management and other functions.
Finally, we are returning value to shareholders with the year over year dividend increase to $1 eight annualized providing an increase but well covered dividend strong balance sheet capital and cost discipline returning value to shareholders. Those are the principles, we operate by and we have done so.
And probably most of what is in fashion at the moment.
We have accomplished some important work so far in 2021, which I believe will lead to long term distinction.
First we're having a record year financially attributable to our outperformance in the first quarter, we've continued to execute well on our projects with our two Interstate gas group projects coming in ahead.
Regards will as noted in the press release, and we have continued to find new opportunities with a small net increase in our backlog this quarter.
Second we completed the two important acquisitions, the larger ones stagecoach showing our confidence in the long term value of our natural gas business and taking our total operated storage.
A scarcity to 700 Bcf, we believe in the long term value of flexibility and deliverability in the gas business that was demonstrated last winter.
We're seeing it with the recent tightening in the natural gas markets here and abroad and in our rates on storage renewals.
Third we've continued to advance the ball.
<unk> I'm going evolution in energy markets and in our ESG performance.
Things stand today, 69% of our backlog is in support of low carbon infrastructure that includes natural gas of course, but it also includes $250 million of organic projects supporting renewable.
On the on diesel in our products and terminals business units and our renewable natural gas projects Repurposing and building assets at our current terminal locations to support the energy sources of the future.
Importantly to that 69% is projected to come in at a weighted average 3.6.
Renewables EBITDA multiple of the expansion capital spend so we're getting attractive returns on these investments.
Further our gas team has now concluded three responsibly sourced gas transactions those are low emissions along the chain from the producer through our transmission and storage business.
Turning to be publishing our ESG report.
Including both scope, one and scope two emissions, we've incorporated ESG reporting and risk management into our existing management processes. In the report will explain how in the meantime, sustain a lytic has us ranked number one in our sector for how we manage ESG risk.
Most other rating services have us in the top 10. This is increasingly a point of distinction with our investors our regulators and our customers.
With all of this our projects these commercial transactions and our ESG reporting and risk management, we continue to advance the ball on ESG and the evolution in energy.
And two markets without sacrificing returns we continue to focus on the G governance and ESG as well.
These things are all important to our long term success and we have advanced the ball significantly on all three in 2021 we.
We believe the winners in our sector will have strong balance sheets low key.
Energy moderation that are safe and environmentally sound and the ability to get things done and difficult circumstances as always we will evolve to meet the challenges and opportunities and with that I'll turn it over to Kim.
Okay. Thanks, Steve So I'm going to start with the natural gas business unit for the quarter transport volumes were up about three.
There are approximately $1 1 million deck with arms per day versus the third quarter of 'twenty and that was driven primarily by increased LNG deliveries and the PHP in service and then it was some of those increases were somewhat offset by declines on our west pipes.
Aligning Rockies production.
<unk> pipeline outages and contract expirations physical.
Physical deliveries to LNG facilities off of our pipelines averaged five 1 million back with arms per day, that's a 3.3 million <unk> per day increase versus the third quarter of 'twenty. When there are a lot of canceled cargoes.
Our market share of deliveries to LNG facilities is approximately 50%.
Exports to Mexico were down in the quarter when compared to the second quarter of 'twenty as a result of a new third party pipeline capacity added during the quarter overall deliveries to power plants were down as you might expect with the higher natural.
Prices are.
Our natural gas gathering volumes were down about 4% in the quarter compared to the third quarter up 20, but for gathering volumes I think the more informative comparison as the sequential quarter, so compared to the second quarter of this year volumes were up 5% with nice increases in the egg.
Ford and the Haynesville volumes, which were up 12% and 8% respectively.
And our products pipelines segment refined product volumes were up 12% for the quarter versus the third quarter of 2020.
And compare it to the pre pandemic levels, which we use the third quarter of 2019 as a rep.
Gas point.
Road fuels were down about 3% and jet fuel was down about 21%.
You might remember that in the second quarter Road fuels were basically flat versus the pre pandemic number. So we did see some impact of the delta variant during the quarter.
Crude and condensate volumes were down about 7%.
Referenced quarter versus the third quarter of 2020 and sequentially they were down about 4%.
In our terminals business segment, our liquids utilization percentage remains high at 94%. If you exclude tanks out of service for required inspections utilization is approximately 97%.
Sent in the rack business, which serves consumer domestic demand.
Our up nicely versus the third quarter of twang, but theyre down about 5% versus pre pandemic levels. Now if you exclude some lost business in Iraq closure, so trying to get volumes on an apples to apples basis volumes on Iraq.
Our room and I'll slightly exceeded pre pandemic level.
Our hub facilities in Houston, and New York, which are more driven by refinery runs international trade and blending dynamics have shown less recovery than Iraq terminal versus the pre pandemic levels.
In our marine tanker business, we continue to experience.
<unk> however, we.
Recently seen increased customer interest on.
On the bulk side volumes were up 19%, so very nicely driven by call steel and Pat Pat.
Bulk volumes overall are still down about 3% versus 2019 on an apples to apples comparison, but if.
So we look at call steel and pet Coke on a combined basis, they're essentially flat to pre pandemic levels.
And our C. O two segment crude volumes were down about 6% C. O. Two volumes were down about 5%, but NGL volumes were up 7%.
Priced we didn't see it.
You just benefit from the increase in crude price due to the hedges we put in place in prior periods. When crude prices were lower we do however expect to benefit from higher crude prices in future periods on our unhedged barrels and as we layer on additional hedges in the current price environment.
We did see NGL price benefit in the quarter.
As we tend to have less of these volumes.
Compared to our budget. We're currently anticipating that both oil volumes and C. O two volumes will exceed budget as well as oil NGL and <unk> prices.
But our oil production is primarily driven by reduced decline in the base production and better project performance.
Order of Blackrock.
Overall, we are seeing increased natural gas transport volumes, primarily from LNG exports.
Increased gas gathering volumes in the Eagle Ford and the Haynesville on a sequential basis product volumes are recovering versus 'twenty 'twenty. However road fuels were down about 3%.
That's versus pre pandemic levels versus flat with pre pandemic levels last quarter as we lap likely saw an impact from the delta variance versus our budget C. O. Two crude oil production is outperforming and we're getting some nice Hal on price.
We're still experiencing weakness our Jones act tankers in.
And it's been a little slower than we anticipated and bringing on new wells, but our producer customers have indicated that they're that they will continue bringing on new production with some wells being pushed into 2020 with that I'll turn it over to David.
Thanks Kim.
So for the third quarter of 2021, we're declaring a dividend.
The box <unk> 27 per share, which is a dollar of it annualized and 3% up from the third quarter of last year.
This quarter, we generated revenues of $3 8 billion up $905 million from the third quarter of 2020.
We had an associated increase in cost of sales with an increase there of 900.
<unk>.
Both of those increases driven by higher commodity prices.
Last year.
Our net income for the quarter was $495 million up 9% from the third quarter of 2000, and our adjusted earnings per share was 22 up <unk> <unk>.
From last year.
Moving onto our.
For Magna and distributable cash flow performance, our natural gas segment was up $8 million for the quarter.
Incremental contributions from Stagecoach and THP.
Were partially offset by lower contributions from F T, where we've had contract explorations and lower usage and park and loan active.
So our <unk> system.
The product segment was up $11 million driven by continued refined product volume recovery, partially offset by some lower crude volumes in the Bakken.
Terminals segment was down $13 million driven by weakness in our Jones Act tanker business, partially offset by the continued refined product.
Activity uncover volume excuse me volume recovery, we've seen there.
Our G&A and corporate charges were higher by $28 million due to lower capital spend resulting in less capitalized G&A this quarter versus a year ago as well as cost savings we experienced in 2020 as a result of the pandemic.
Product those are partially offset by cost.
Cost savings, we experienced this year due to our organizational efficiency efforts as well as lower noncash pension expenses this year versus last.
Our JV DD&A was lower by $30 million, primarily due to lower contributions from Ruby pipeline.
Interest expense was favorable $15 million driven mostly by our lower debt balance of this year versus last our cash taxes are favorable $37 million and that was due mostly due to 2020 payments of taxes that were deferred into the in the second quarter into the third quarter.
For the full.
Cash taxes are expected to be just slightly unfavorable to 2020 and slightly favorable to our budget <unk>.
Sustaining capital.
It was unfavorable this quarter $64 million driven by spending in our natural gas segment.
And thats only slightly more than we budgeted for the quarter, though for the full year, we expect to.
Year cat $65 million higher than budget with most of that variance coming in the fourth quarter.
Total DCF of $1 $13 million or <unk> 44 per share it was down four cents from last year.
Our full year guidance is consistent with what we provided last quarter with DCF at five.
<unk> 4 billion and EBITDA of $7 9 billion.
Moving onto the balance sheet, we ended the quarter at 4.0 times net debt to adjusted EBITDA and we expect to end the year at 4.0 times as well.
This level of benefits from the largely nonrecurring EBITDA generated during the first quarter.
About during the winter storm here of that.
And our long term leverage target of around four five times have not changed.
Our net debt ended the quarter at $31 6 billion down 424 million from year end and up 1.4 dollars 3 billion from the end of the second quarter.
To reconcile.
Corner of that change.
And net debt for the quarter, we generated $1 $13 million of DCF, we paid out dividends of $600 million, we've closed the stagecoach and kinetics acquisitions.
Collectively were $1 5 billion.
We spent $150 million on growth.
Capex and JV contributions and we had a working capital use of $175 million, mostly interest expense payments in the quarter and that explains the majority of the change for the quarter.
The change from year end, we generated $4 367 billion of DCF.
Paid.
Inside of <unk> 8 billion of dividends.
<unk> $450 million in growth Capex and JV contributions, we had the $1 5 billion Stagecoach and connector acquisitions, we had 413 come in on the <unk> sale.
And we've had a working capital use of $600 million.
Once the interest expense payments and that.
That explains the majority of the change year to date and that completes the financial review.
Okay, We will open it up for questions now and as we usually do I'll ask you to limit your questions to an initial question and one follow up and then if you have more get back in the queue and we will get around to you.
Most of them Michele.
Thank you Sir at this time, if you do you have any questions or comments you May press star. One if you would like to withdraw. Your question you May Press Star two one moment. Please for the first question.
<unk> from UBS you May go ahead Sir.
Hi, good afternoon, everyone.
I know maybe it maybe just start off a little bit here you know you've been very active the last few quarters, you know on the acquisition and capital front with respect to Orange, even there was a piece of it and so forth.
Handing out your energy transition plan.
You've added to the backlog and so forth, but there have been fewer.
One updates on the carbon capture side.
Got it.
Some peers.
Some major announcements recently models on carbon capture and sequestration.
If kinder planning to pursue carbon capture as aggressively as some of these announcements you've seen just wondering if you could sort of give us an update on kind of the strategy Youre approaching you talked.
That's a commercial arrangements last time.
Just some broader thoughts with you Matt.
Sure. Yes, we are we are involved in and pursuing carbon capture opportunities I wont express those in terms of comparisons to others in the announcements.
Announcements they've made I want to be really clear about this we view this as a an attractive opportunity.
It will take some time to develop and I think that.
It's important to understand the 45 to tax credits as they were finalized at the beginning of this year do make economic certain investments primarily related to capturing the flu stream off of ethanol facilities and gas processing facilities and primarily.
But it goes in West, Texas, which are adjacent to our existing cotwo infrastructure.
So there are some things to work through here and let me give you a few examples one is you have to get the underground injection permits that's a long drawn out process today that should get shortened up in Texas in particular in the legislature last time.
They gave the railroad commission privacy on that they have to go apply for that at EPA, but that'll that'll shorten up the process from a five or six year process to something much more brisk I would think and then the other thing to think about is just the pipe itself. So the the pipe.
It's more much more efficient far more efficient.
I'm the move C O two in liquid form that requires high pressure special purpose pipe, which we have 2000 psi.
Through the pipe that's not something that you can achieve with a repurposed oil or gas pipe now we've looked at this and we think it is for certain applications, particularly.
Fish and for volumes shorter distances, there are potentially some repurpose opportunities I think the breakeven cutoff, there's like $3 50, a day or less.
In order to make that.
The more attractive, but otherwise you need you need some specialized facilities to move it efficiently and to inject it into the ground.
Smaller so we think we've got an advantage and that got to get the permitting shortened up and we got to get customers who are nearby our infrastructure.
In the boat if you will but it's not it's not a tomorrow thing, it's probably not a next year thing, it's something that's going to take a little bit of time to develop but we are in active conversations.
Great No I appreciate.
And the color there Steve maybe.
For a follow up question you.
Given the challenges with the security natural gas by many customers doing what you started your EBIT during the first quarter.
Got hired gas prices right now, which will also are you seeing interested we're actually.
Get the tracking activity around your system and seeing the haynesville.
Or any of your pipeline and storage assets more broadly, where we can see some potential growth where you sort of take this.
The spot environment, that's pretty juicy, right, now and sort of converted to some longer term contracts.
We have signed up some incremental business in Texas and.
<unk> also been able to particularly on our flexible storage we have seen.
Rate increases pretty good rate increases because I think everybody got a bit of a wake up call on the underlying value of storage and we are working on additional incremental business.
We have talked.
Publicly with regulators and others.
And we have object that would add additional delivery capability in the state of Texas that would help support more power in human needs loads, even outside of what is really our current.
More active market area, but.
But we think too that we're seeing that really across the country that as things tightened up in these markets.
About our people are putting value as they should put value on firm deliverability, and let's face it supply hasnt quite kept pace with demand, particularly as Alan as export demand has grown.
Power demand has come off a little bit as Kim mentioned, but it's fairly strong and industrial demand is strong residential commercial is seasonal but you know the.
<unk> has outstripped supply and.
The producers are working on it but it hasn't come back as fast as it came back for example, when we emerged out of the 2015 2016 downturn. So.
The value of deliverability firm Deliverability as you get more intermittent resources in a generation.
Demand in stack as people look at winter coming.
As people look at the experience. We just had we think that that's going to be attractive.
And we're seeing that a real transactions.
Thank you. Our next question comes from Spiro <unk> from Credit Suisse.
Generation, Hey, good afternoon, everybody Steve.
Steve asked you about gas macro last time and didn't think I'd have to ask you again, but here we are at five to $6 gas and so it seems like a lot's changed since August so would just love refreshed thoughts on that front in terms of what you think is going to take to kind of normalized prices here to your point, we haven't really seen that supply risk.
Yeah, what do you think that's going to take what are producers telling you they need to see in win and then Alternatively, Kim you mentioned that some of the power plants have taken less deliveries because of the higher pricing is demand destruction is something we need to worry about at these price levels.
Okay.
I will start with our with the first one on the gas macro.
Sponsor and I'll call on Tom to fill in on this here.
As Kim mentioned, we are starting to see some sequential improvement sequential quarter Q2 to Q3, and there's been a lot more lively conversation I think with producers who are <unk>.
Bringing some rigs in and starting to share some development plans we've had some times.
Shifts in the Bakken as Kim mentioned, but generally speaking I think it's the case that producers are responding, but again not responding as quickly as they did in the last downturn and as as many have reported.
Youre seeing the publicly traded producers continue to be exceedingly disciplined about coming back in.
<unk>.
They're enjoying the higher prices, but not responding as much.
I have a concern about capital discipline. However.
I think something on the order of half of the rigs in the Permian now are owned by private players and so the supply will come back.
Whichever capital source drives.
So it's been coming back a little bit slower.
You covered it well, okay and then on the <unk>.
You want to talk about power demand and at current pricing.
I mean, we have seen you know.
Some degradation in power demand due to higher gas prices, but not as much as you would expect and certainly not what we have seen.
So it has in prior years and then all of that has to do with.
Coal retirements and.
Just the.
Need to backfill renewable.
Power on an intermittent basis so.
Again, a slight decrease but not significant and.
We still see as Steve said.
Power customers wanting to sign up for services to firm up there.
<unk> gas fired power.
Capabilities on a longer term basis, so I think that all looks good for the future.
Great that's helpful color.
And just maybe get your latest thoughts around capital spending going forward kind of on a multiyear basis. You know historically you guys had talked about two to 3 billion spending in any given year.
And then of course with the pandemic and the slowdown I think that fell to a sort of a 1 billion or less was kind of a new new number but.
Since then we've seen the outlook kind of dramatically improve.
Roof, especially when you consider a lot of the energy transition opportunities in front of you that rich mentioned earlier. So just wondering how do you think about an appropriate level of growth capex or M&A spending. However, you want to think about it going forward that sort of keeps you within your target leverage and also allows you to grow the dividend.
Yeah, so when we sort of adjusted the outlook from two to three to something lower.
Sure we adjusted it to one to two and we still think that that's a pretty good estimate.
And this year, we ended up on the expansion capital front under $1 billion as you mentioned so we were at.
About 800 million for this year and look this is a function of kind of what what kind of.
What.
If activity there is out there a lot of the some of the new origination did come in the renewable diesel area and the and the renewable natural gas area as we talked about.
Earlier, but we continue to have 53% I think of our backlog is for natural gas and so.
We still think the one to two is about <unk>.
What kind of I think you know it is a.
Two two points here, one a really.
A really big Mega projects, it's no secret to anybody that those are harder to permit and build.
But a lot on the other hand, a lot of the growth that the growth is on the Texas and Louisiana Gulf Coast growth in gas demand that we expect.
And you know, we're just starting to hear a little bit more from Permian players about the need for another pipeline. They don't need it right now, but there timeframe on when it might be needed out of the Permian has moved up a bit and so those discussions aren't very advanced its just a kind of.
A function of current current prices.
Right in both crude and to some extent natural gas, but really huge projects I think are probably not as likely to get done are permitted and so we think the one to two is still probably about right building off our existing network at attractive returns.
Let me just emphasize as Steve said, so many times that we're going to be very disciplined.
Mrs. This approach to spending capital make certain that these are satisfactory returns.
I agree with the kind of range, Steve is talking about but as we've explained we have a lot of uses for our capital and we're going to be very judicious about how we use them.
Yeah.
Thank you. Our next question comes from Jeremy Tonet from Jpmorgan you May go ahead Sir.
Hi, good afternoon.
Afternoon.
Wanted to touch on carbon capture a bit more here and just wanted to get your thoughts on how you think this can unfold in do you think that the hub concept is really needed to kind of move.
Especially kind of what the University of Houston in Rice in Colombia have discussed in their papers or do you think that standalone projects on carbon capture can you know moved forward by themselves.
Well, we're exploring the standalone projects I mean, we're open to discussing.
There are larger opportunities as well.
Forward to perhaps.
Given that we know how to build own operate.
C O two pipe, perhaps participating in the transport piece of it.
But.
Again for all the reasons I said before I think there's a lot of wood to chop before we see the those bigger projects come through Jesse anything.
And what I'd add there no I agree I think can stand alone probably we quicker because you have multiple parties would have to come together on the hub concept.
Got it that's helpful. There and then as far as it relates to what Kinder could do going forward do you see it mostly just organic growth off your footprint, where do you see kind of the.
Projects that are already have commercial backing in and moving forward that are servicing ethanol production and the C. O two off of it in the upper Midwest is that the type of thing that kinder could get involved with or just kind of sticking to your own asset base again known carbon capture here.
Yes.
We've.
Two of them and again I just want to emphasize look I think carbon capture and sequestration. If we're going to meet climate objectives over the long term, it's gonna have to be part of the picture and and some work is going to have to be done there, but I'm just trying to set expectations at a rational level at how quickly we think that's likely to unfold and where we think the first projects get.
Looked at said so there's a focus on our existing network, but we have had discussions with people off the network are about the potential to capture and sequester carbon those things are still in early stages, but they are things that we would.
Explore if the returns were good.
Thank.
Our next caller is Michael Blum from Wells Fargo. You May go ahead Sir.
Thanks, Good afternoon, everyone.
I wanted to go back to Oh Rich your opening comments you referenced potentially I think private investors are perhaps partnering with you to invest in the business can you just expand on that comment.
Thank you, suggesting public markets may or may not be there. So you might be looking at other sources of capital.
I am saying is that we think we're creating real value as we move towards critical mass in our energy transition ventures group.
And at some point at the time of our choosing when we feel we have critical.
Sort of absent still have significant growth opportunities, which we think are there in spades.
Then I was saying that we believe and the board believes that we would have the opportunity to partner.
With public or private ownership on terms that we think would be very favorable to us. We think this is a.
Nicole My form.
That deserves and we will receive a lot of investment interest when it gets to be the appropriate time.
Okay got it. Thank you for that totally changing gears wanted to ask a little bit up but you know our business just given the increase in oil prices I guess have.
<unk> been able to lock in higher priced hedges going forward and are you thinking about that business any differently in terms of allocation of capital given the higher prices.
Yeah, we continue to layer on favorable hedges last quarter, we've been able to really.
Let the backend of our hedge.
So that's a positive we are seeing.
Some organic growth within our existing assets as prices increase so.
So we think that'll continue.
And our next question comes from Tristan Richardson from Trust Securities. You May go ahead Sir.
Profile good afternoon.
To follow up on on gas storage comments.
Commentary there on positive signs on renewals could you just generally frame up for us were contracted capacity use.
Relative to the nameplate or capacity.
Capacity example, tonight for for potential customers and then as you say.
The value proposition.
Well, Yeah, you got to think of it in several buckets I mean, one mentioned that if we got it under contract we are looking at a storage expansion opportunity.
Specifically in Texas.
We have storage, that's rolling off and renewing every year, we try to keep that.
Or are we under contract are pretty fully under contract.
As that happens, we're expecting well we are seeing and we're expecting we will continue to see that.
Values improve but I Wanna.
Making a further point about the buckets here really flexible storage like we have.
A lot 30, or 40 Bcf of that in our Texas Intrastate business Stagecoach is a pretty flexible storage asset as well that's where the value is is really appreciating the most.
If you think about some of our shorter term storage related services like parking loan in a backward dated market, there's not as much opportunity.
You know of our gas for customers and so that the shorter term business gets a little more limited, but in the in the aggregate and in the overall outlook storage is becoming more valuable and our judgment and that's what made it and we're seeing that and it's also what made the acquisition opportunity.
Which was somewhat fortuitous, but.
To part are attractive to us.
Helpful. Thank Steven and then switching gears a small piece of your business can you talk a little bit about.
Business Green closer back towards 2019 levels.
Can you talk about just some of the dynamics we're seeing.
Commodity inflation and supply.
It made it he shouldn't we see some of this backdrop.
Paul.
Hamlin from bulk business, either on the pricing side or on the utilization side.
John Schlosser sure we seen most of the growth in the coal area, where we were up 40% on the quarter and in the steel area, we were up 38.
Okay, which kind of mirrors, what youre seeing from an international standpoint.
U S production was up 39% and exports were up 45%.
So we've been following along for that we are back at our pier nine facility, which is where the predominance of our export business is on the call back.
Back to 2019 levels.
Or some as we stand today.
Yeah.
Thank you our next caller is Keith Stanley from Wolfe Research, Sir you May go ahead.
Hi, good afternoon, so having closed the Connecticut steel now can you just given up update on I guess the opportunities.
So you see in R&D, and whether you think that'd be a significant part of your capital plan over the next several years either through acquisitions and organic growth.
And then Relatedly can you just talk to any progress or developments in the voluntary market that you're seeing as you try to term out a rent exposure there.
Sure.
Kinetics. The three projects are as I believe Kim mentioned that they that came with the deal. If you will those were all under contract under EPC contract et cetera at the time that we close that's been kicked off those are on track in terms of the opportunity set you know there are hundreds.
Landfill opportunities, but there are other competitive players out there we think we bring some scale to that business. The returns are attractive.
Capital commitment is $25 million to $40 million essentially per per installation.
I guess, what I'd say Keith is it's a little early to tell right now when.
And how much okay, we're keeping a very close eye on it there's a lot of interest. There's you know shadow backlog, if you will customer discussions underway on a significant number of additional landfills, but there's you know there's work to be done commercially in and all of that from here to there, but it's it's very economic and.
When we've got some scale, we believe to help.
Help commercialize this maybe more quickly than others, so optimistic but hard to quantify the the wind and the or the yeah. The wind into how much right now are the voluntary market we have good real conversations.
Amgen's with real Counterparties, who are interested in buying in the voluntary market that means without the rins value and without the rins volatility and.
Yeah, but at very nice returns that are that would be locked in and so I think that market is real because of the ESG commitment and the net net.
Say your commitments that people are making you know their interest in and doing using renewable natural gas is strong.
And so as the interest in the transport market I mean, when you think about the the technological and economic barriers of electrifying heavy duty trucking.
Trucking.
Zero.
Compressed natural gas and even LNG as an attractive alternative that helps some of the big fleet operators meet their climate objectives and do so at attractive prices.
And the other thing I would mention as you know we sell sell rins not quite exactly at the time, we generate.
We've pretty much sold rins inventory for the for the year and.
Prices that are better than what we had in the acquisition model.
Thank you. Our next caller is chase Mulvehill from Bank of America.
Hey, good afternoon.
I guess the first.
First question is really around LNG.
You've got the two BS a.
A day coming online for LNG exports over the next 12 or 18 months with Calcasieu pass.
Could you maybe walk through kind of how do you think this is going to impact your transport volumes and then.
If you're going to get some pull through on the G&P side I know that you said, you've got about 50% market share. So should we expect about 50% market share on the incremental to be used to come online over the next 12 to 18 months.
Oh yeah.
Yeah.
So we do have incremental projects that we're serving we don't have contracts with.
With both of those facilities, but we certainly have.
I have a lot of business with Cheniere and if they were their capacity grows we certainly have our commitments.
Commitments to grow with them, we do have other projects that we are in active discussions on projects that we believe will be.
F I deed.
Probably sometime next year, and we think we will get.
Our share of that capability as well then that isn't in our backlog right now.
Okay, right and then one follow up just sticking on the LNG theme.
And kind of thinking about LNG.
In response, we sourced natural gas are.
Are you, having LNG operators no request responsibly sourced natural gas as a feedstock.
And you know today is actually responsibly sourced natural gas getting a premium out there in the market today.
Now on the transactions that we've done.
There hasn't been a premium to date, but I think the interest is really escalated here of late and the the LNG customers are interested in the overall carbon content of their cargoes and that includes methane emissions and what they would tell you and what they've told US is sort of we're not their problem that problem is just making sure.
They have producers who are using the right type of completion techniques et cetera, but there is interest in that particularly as they're trying to place cargos in Europe, and and they're very focused on it and we are working closely with them to make sure we do our part but it is a.
It is a.
Much of a point of interest with our with.
Our LNG customers.
Our next caller is Gabe moreen from Mizuho you May go ahead Sir.
Hey, good afternoon, everyone I'll only ask one since I know everyone wants to get to the Astro game, but.
Around the 64 million dollar emissions reduction project on the ship channel.
I'm, just curious kind of the evolution around whether that's you know there's going to be a return on that project and also got something.
I guess, that's just specific to the HFC or can you take what youre doing there and apply it to some of your other hubs as well as their interest in doing that.
Yeah, I mean, it's a project where we've got existing.
Existing paper combustion units come on replacing those say for combustion units with vapor recovery units.
And so there is an economic return the economic return comes from as we capture.
That those papers then you know we can sell that product.
And then the other the paper.
Paper recovery in it and so there's a little less intense.
Our combustion and so there is natural gas savings.
So there is an economic return associated with the lower cost of running the equipment and with the volumes that we are recovering.
And that gets us to a nice economic return.
Yeah, we haven't counted anything in the returns.
For the emissions reduction, but we are going to get you know a 72% reduction and the emission Oh from that facility on this project from this project.
And tell me if I could just ask a slight.
Follow up to that is the board starting to move into.
Sort of put a price on C O two sort of implicitly when youre discussing on projects.
We have not put a price on C O two when we're when we were discussing projects.
As a non.
Non quantitative consideration.
But the projects need to on a quantity.
Basis need to clear that hurdle.
Yeah.
Our next caller is Michael Lapides from Goldman Sachs. You May go ahead Sir.
Hey, Thanks for taking my questions I have two first of all can you talk a little bit about timing for either the Permian or the haynesville of when you might think either basin.
Or what your customers are saying about when either basin would need new long haul capacity.
That's question one question two.
Steel prices are through the roof labor was up a good bit how should we think about if new kind of larger pipelines are needed for one or two basins.
What cost inflation.
Inflation means for kind of potential returns or potential tariff levels.
Okay.
On the Permian takeaway you know when we had talked about before is kind of the need being there and kind of 2025 call. It and now that's probably at least based on some conversations with customers.
There was maybe moved up a year now Michael I, just want to point out need and contract signatures can sometimes be two different things that occurred to different points in time, and so I think it's gonna be.
We'll be having commercial discussions that we'll see whether the real commitment demand is there.
There and we'll we'll see how that plays out really probably over the next year or so Tom on the Haynesville in terms of the timing there. Yeah. So there is a one project that is up I believe it will be in the market in 2023, so that'll help relieve some takeaway pressure and.
We think there is a need for.
Or you know some expansion projects.
You have some time in the same you know mid 'twenty five to.
2020 timeframe for additional Bcf or so.
And then on your question on on steel costs are going to like yeah. They have absolutely gone up we were looking at.
Some information on hot rolled coil, which is what goes into the pipe mill to make a pipeline that's up three <unk> year over year, it's about 90% or so year to date and but the thing about it is that there there is capacity in the world market and so we've got a current dislocation and the view would be and you see to the extent people are willing to.
Forward that it starts to come down but in any case, we've been here before in terms of needing to protect us from escalation in steel prices.
Included in the past projects steel trackers, sometimes we needed them, sometimes we didn't but.
And the other thing we're doing really across the board on materials as when we were evaluating.
A project for approval, we make sure to ask if that's been updated for current equipment materials and and steel prices. So that we make sure that we get that priced into the deal.
Your real question don't think it is an obstacle to getting an additional long haul pipe.
Thank you. Our next caller is Colton bean from Tudor Pickering, Holt <unk> company, Sir you May go ahead.
Afternoon.
Just looking at terminals I think they released the Jones Act fleet was a key driver of some of the softer margin sooner.
Seen counterparties exercise need those renewal options.
<unk> would you expect mostly spot exposure as we look at 2022 and then just a related question should we be expecting any additional idling them to cut opex there.
Okay.
John We don't expect any additional idling.
We were able to kind of weather the storm through Covid with no impact hit us.
This year like it hit the entire industry, 25% of the capacity of roughly 45 vessels was idled that at any given point. This year. We had two that had been idled all year and rough rule of thumb is $3 million per quarter per vessel.
<unk> been able to re contract all of the other.
Other vessels as the year got has gone on or put them in spot for a short period of time until we were able to get those re contracted.
Our exposure if you look kind of forward into 'twenty two was about 22% of the fleet days.
Great I appreciate that update.
And then.
Maybe switching gears here just checking on a hydrogen obviously a longer term opportunity, but we've seen a number of pilots and I think just this morning had a larger scale production announcements. So are you seeing any requests for blending on the transportation network as we look out a few years.
Yeah, we're having conversations with customers about that it.
Is as you pointed out it's still a bit of an economic challenge. So that doesn't mean it won't happen, but it does mean that you have to have something that will cover those economics like the ability to pass it through to a retail customer and a utility context or something like that again. This is one of those things like C. C. You asked that.
Presumably will be part of the solution.
Lucian over the long term, but we're still in the early innings on it right now with pilots and experiments and announcements, but not you know we don't have.
Real concrete commercial activity at this point.
Thank you our next caller is Sunil Sibal from Seaport global.
Security you May go ahead Sir.
Yes, hi, good afternoon, everybody and thanks for taking my question. So my first question was related to a clarification on your opening remarks, I think you mentioned that in the back on the volume pick up has been somewhat slow did I hear that correctly and if so what in your mind changes the trend.
You know obviously the commodity strip is fairly strong looking forward.
Yeah, So I think that dynamic is changing.
In terms of producer plans to continue to adding to continue to add wells to our system, they're absolutely doing that and the rigs are running and they are they are drilling in.
And the work done I think it was just that the connections were a little slow or the the wells to be put online were a little slower than what we had anticipated for the year.
But it's still we.
Thank robust growth opportunity for those assets, both on the gas and the crude side.
Got.
So it's just a matter of time.
Yes.
The second question is related to the volatility we've seen in the natural gas market you send a spread that's a drop.
I was just curious you know how does that kind of changed your view on the Ruby pipeline. Obviously, you know some of the contracts that have rolled off.
Uh huh.
And if you're seeing the impact of this spreads widening on that pipeline and how should we think about that asset going forward.
Yeah, not particularly on Ruby.
From time to time, there's some activity there depending on what's going with the pipelines coming down from what's going on operationally with the pipelines coming down from Canada, but no change.
Give your outlook, there and no change in our update on our view on Ruby which is.
We are gonna make as Kinder Morgan and economic decision for Kinder Morgan shareholders when the debt comes due.
And Sir at this time I am.
I'm showing no further questions.
Oh. Thank you, obviously, everybody wants to get off and watch that baseball game up in Boston. Thank you very much.
And thank you. This concludes today's conference call. You May go ahead and disconnect at this time.