Kinder Morgan to cut spending further in 2021 amid uneven US midstream recovery

Houston — Kinder Morgan will cut growth spending again in 2021 amid a slow recovery in volumes following the worst impacts of the coronavirus pandemic, and expectations of lower re-contracting rates on certain natural gas pipeline segments, the company said Dec. 8.

The Houston-based company, which moves more than a third of the gas consumed in the US, will invest $800 million in expansion projects and contributions to joint ventures next year. That compares to about $1.7 billion budgeted for this year, which was reduced by $680 million from what was projected in late 2019.

The latest plans, which Kinder Morgan hopes will improve profits and returns to shareholders, reflect the continued headwinds facing the midstream sector. When considering new projects and acquisitions, Kinder Morgan is among an increasing number of pipeline operators that are being disciplined in discretionary spending. Enterprise Products Partners and Canada's Enbridge also outlined Dec. 8 some of their financial and project-related expectations for 2021.

Kinder Morgan expects full-year 2021 net income of $2.1 billion, up $2 billion from its 2020 forecast. The gain, however, will be due primarily to accounting maneuvers the company made this year as its assets were impacted by reduced demand. A surge in US LNG export activity heading into 2021 is expected to benefit Kinder Morgan, given the record volumes in feedgas that are moving via pipelines to liquefaction terminals.

The lower re-contracting rates in 2021 are expected on Ruby Pipeline, which Kinder Morgan owns and operates, and Fayetteville Express Pipeline, a joint venture between Kinder Morgan and Energy Transfer that is operated by Energy Transfer. Canada's Pembina has a preferred stake in Ruby.

In addition, Kinder Morgan expects lower crude volumes and realized prices in its CO₂ segment, partly offset by projects placed in service and increased refined product volumes. Additional details will be provided Jan. 27.

In its presentation to investors, Enterprise said it expects US production to continue to recover from lows seen over the summer as shut-in volumes return, though overall domestic and global exploration and production activity will remain low. It also expects consolidation and bankruptcies in the sector to continue. The best capitalized and geographically situated US producers will maintain an advantage in the current environment, Enterprise said.

As for Enbridge, it said it is on track toward achieving the financial priorities it outlined in a three-year plan announced in 2019 despite the shocks to energy markets from the virus this year. Among other things, it wants to grow core businesses through low capital intensity and utility-like investments, allowing it to preserve cash for flexibility. Positive drivers expected in 2021 include continued customer growth within its gas distribution and storage business and rate increases on its gas transmission and midstream systems.