Kinder Morgan at Raymond James Conference: Strategic Growth in Natural Gas

On Tuesday, March 4, 2025, Kinder Morgan (NYSE: KMI) presented at the Raymond James & Associates’ 46th Annual Institutional Investors Conference. The company, a significant player in the energy infrastructure sector, emphasized its strategic focus on natural gas, highlighting both growth opportunities and challenges. Kinder Morgan’s robust position in the market is supported by its extensive pipeline network and strong cash flow, although the company must navigate market fluctuations and investment demands.

Key Takeaways

• Kinder Morgan moves 40% of the U.S. natural gas daily and has an $8.1 billion project backlog.
• The company plans to invest $2.5 billion annually in energy infrastructure, aiming for a 5% EBITDA growth rate.
• Management holds 13% of shares, aligning their interests with investors.
• 64% of 2025 cash flows are take-or-pay contracts, stabilizing revenue.
• Kinder Morgan is reducing leverage to 3.8 times debt to EBITDA, its lowest in a decade.

Financial Results

• Kinder Morgan anticipates a 10% increase in EPS and a 4% rise in EBITDA for 2025.
• The company projects $400 million in EBITDA from new investments, representing a 5% growth.
• Free cash flow from the CO2 segment is expected to range between $250 million and $550 million annually.
• The company’s leverage reduction to 3.8 times debt to EBITDA marks a significant financial milestone.

Operational Updates

• Kinder Morgan transports 40% of U.S. natural gas and supplies 45% of feed gas to liquefaction facilities.
• The company’s pipeline utilization increased from 74% in 2016 to 87% in 2024.
• It holds a 45% market share for natural gas in power generation across Southern States.
• Sanctioned $6 billion in projects last year, contributing to an $8.1 billion backlog.

Future Outlook

• The LNG market is expected to more than double by 2030, offering growth opportunities.
• Kinder Morgan plans to spend $2.5 billion annually on infrastructure investments.
• The natural gas market for U.S. supplies is projected to grow by 28 Bcf a day.
• The company is exploring renewable natural gas and carbon capture opportunities.

Q&A Highlights

• Kinder Morgan secures contracts post-sanctioning to lock in prices and mitigate cost escalations.
• Cost overrun protections are sought, with shared costs with customers where feasible.
• The company includes contingency budgets to manage unforeseen project issues.
• Actively pursuing LNG projects, contributing to its strategic portfolio.

Readers are encouraged to refer to the full transcript for a more detailed understanding of Kinder Morgan’s strategic initiatives and financial outlook.

Full transcript - Raymond James & Associates’ 46th Annual Institutional Investors Conference 2025:

JR, Host: right. I think we’ll go ahead and get started now. We’re just waiting an extra minute there to try to give people some more time to get over here from lunch and from some of the panels. But we’ll get started with Kinder Morgan here. We’ve got David Michael, CFO, with us today.

Really excited to hear the conversation. This is one of the large cap blue chip names in the midstream space with a lot of really interesting exposure to the natural gas demand themes that have been really topical over the last couple of years. So, it should be a really good conversation. I’ll turn it over to David now.

David Michael, CFO, Kinder Morgan: All right. Thanks, JR. Appreciate it. Welcome in, everybody. Glad you guys can make it and hopefully you all stay awake after after the lunch meal you just had.

So first, the most important thing here you’re going to hear is our forward looking statements slide. And so please review this and our SEC filings for risks that could materially affect our expected results. Additionally, I’ll be discussing forward looking statements and certain non GAAP measures during the presentation. So for a full list of all of those measures and reconciliations, you can see our presentation on our website. All right.

That out of the way. So Kinder Morgan is a large infrastructure energy infrastructure player, owner and operator in The U. S, largely focused in The U. S, although as we’ll talk about with the liquefied natural gas play, we’re increasingly exposed to some of the international dynamics on the global stage. We move 40% of all of The United States natural gas supplies on a daily basis.

We own 80,000 miles of pipeline collectively, so that’s enough pipeline to circle the earth three times. So it’s a lot of assets. And as you can see on the left hand side here, the largest portion of our business, a portion of our cash flow is natural gas. So that’s what we’re going to spend our time talking about today. It’s 65% of our cash flow today and north of 80% of our backlog projects, our growth investment projects are focused on natural gas transmission and storage.

So our overall strategy, the company was founded twenty eight years ago by Rich Kinder and Bill Morgan, and the business strategy hasn’t changed much in that time. We’ve built a portfolio of assets that are fee based, that are core to our position in the energy business. We focus on natural gas investments. We maintain a strong balance sheet with adequate liquidity, and we prioritize the use of the cash flow that we generate to fund our investments internally so that we can minimize the reliance on external capital raises. Minimizing commodity prices and our exposure to commodity prices has also been a key part of our strategy.

So our assets are long haul, mostly take or pay, stable cash flows regardless of what the underlying commodity price movement looks like. So that insulates us from a lot of the commodity price volatility that we see on a regular basis in this industry. And of course, we have a bias to return value to our shareholders. We are aligned with our shareholders. Thirteen percent of shares outstanding are owned by management.

And so we’re aligned and we have a bias to return that value in the form primarily in the form of a large or a large and slightly increasing dividend. So we talked a little bit about the predictable cash flows and stable cash flows in 2025. ’60 ’4 percent of our cash flows are take or pay. Another 5% of our cash flows are hedged for the year. So that means nearly 70% of our cash flows are fixed and known for 2025.

So take or pay cash flows are cash flows where counterparties have reserved capacity in our storage fields, on our pipelines, and they pay us for that capacity whether or not they use them. So similar to a rent you pay for an apartment, that’s very high quality forms of cash flow, and we’re very proud that it’s almost twothree of our portfolio. On the fee based business here, this is business that’s similar to a toll road. If a car comes down that toll road, it pays the toll. If not, we don’t get one.

But this is a business where it’s these assets are physically connected to the refinery complex in The United States and in many cases, the end demand use markets for those refined products. So as long as the refinery complex continues to operate at the same or similar levels, we get our revenue and margins from that business. It’s very steady. We’ll have a graph on that later, but you’ll see it’s actually a slowly increasing because of rate escalations that we have in that business annually over time. So take or pay is very, very high quality form of cash flow, and the fee based cash flow that we have here has been extremely reliable over the years.

We have improved we’ll continue to improve our business mix over the years as well from 2014 to 2025. You can see we’ve greatly reduced our exposure to enhanced oil recovery business. There’s some oil production in that. And we’ve also greatly reduced our exposure to gathering and processing business businesses. The gathering and processing businesses in the natural gas space are great, but they do come with some incremental volatility because it’s reliant on the activity and the drilling activity in those basins.

It also comes with a little bit more direct commodity price exposure. And so what we have done is we’ve focused our efforts on building out the longer haul pipelines across states, FERC regulated, because they are again, they’re in line with that strategy that we’ve had to minimize commodity price exposure and focus on visible stable cash flows. And there you can see the refined product contribution to our overall business has stayed very steady. It’s been growing on a gross basis. On a percentage of our portfolio basis, it’s come down a little bit, but it’s stayed pretty fixed.

So that’s our base business. Where we’re going from there is we’re growing. We’re investing a great deal of capital in the natural gas transmission and storage markets. Since 2020, when COVID happened and we had the global pandemic, our backlog of projects that we were investing in came down quite a bit. Many of those projects came off the table.

There was a great deal of uncertainty and so forth. And our backlog reduced to the lowest level it had been in a long, long time, probably back to when we first started tracking it. We started rebuilding it in 2022. We stayed relatively flat in 2023. And then last year, we sanctioned $6,000,000,000 worth of projects, and our backlog has ballooned to this $8,100,000,000 that you see before you.

And these are very attractive returning projects as well. So not only is this a very large magnitude of projects, but they’re coming at a very attractive return. The $8,100,000,000 is largely going to be spent over the next five years, but we think that underestimates the amount of projects that we’re actually going to achieve during that time. We think we’re going to be spending around $2,500,000,000 a year on new investments, new energy infrastructure investments. And so if you take that $2,500,000,000 and apply the 6x multiple to it, they continue north of $400,000,000 of EBITDA, which is about 5% growth rate.

So strong visible growth rate largely backed by these projects that are, in most cases, already sanctioned, many of them are under contract. So highly confident visible growth. And as we’ll talk about in a minute, the fundamentals facing the natural gas market in The U. S. Are very strong.

So we expect to add to this level of project spend. So 2025, so what does that where are we coming from and where are we going? So 2025, we’re growing our EPS by 10%, growing our EBITDA by 4%. We’re reducing our leverage to a 3.8 times debt to EBITDA, which is the lowest where we’ve the lowest leverage level we’ve had in about a decade. It’s a little bit lower than our midpoint of our leverage target, which is three and a half leverage target range, which is 3.5 to 4.5 times.

So we’re a little bit below the midpoint, meaning we’ve got some dry powder there. We’ve got some spare capacity on our balance sheet, which further positions us well for these growth opportunities we’re seeing come to the market. So here’s the backdrop for natural gas demand in The U. S. The natural gas market for total U.

S. Demand for U. S. Supplies is depending on who you’re looking at is between 215,000,000,000 cubic feet a day, and that’s expected to grow depending on if you look at Wood Mackenzie’s forecast by 20 Bcf a day and our forecast, our Kinder Morgan forecast of 28 Bcf a day. We’re a little bit more bullish than Wood Mackenzie is on the power demand growth.

But regardless of the forecast you look at, it’s 20% growth on top of the market through the end of the decade, which is just tremendous growth and represents a great incremental set of opportunities for us to play a part in building additional infrastructure to meet these needs. So where is that demand coming from? I’m going to break this down into really just two main pieces because the drivers are really focused on LNG feedstock incremental LNG feedstock and power generation, incremental natural gas needed for additional power generation needs in The United States. So we currently serve Kinder Morgan serves 45% of the natural gas that goes to liquefaction facilities that’s liquefied and then exported internationally. And you can see the number one on this slide down on the Gulf Coast.

That’s where most of the LNG incremental LNG growth demand is coming from. And our pipelines are highlighted in this map, and you can see we’ve just got a tremendous network right there to help feed these additional facilities. One additional point I’d like to make here is, it used to be where you could just build a pipeline from one of these facilities to the nearest pipe. So just a lateral off an existing network and that was sufficient. Now most of those pipelines are relatively full.

So now you have to build back into a more liquid point, sometimes all the way back to the supply basin, which means for each one of these new LNG facilities, sometimes that results in two or three pretty major infrastructure projects. So for those of us in the infrastructure space, this represents really great growth opportunity for us and for our peers. Power generation and power demand in The U. S. Is more geographically Southeast in The Rockies in Illinois, Northeast, Arkansas, Southeast in Texas, it’s all over the board.

And while AI and data centers are part of the story there, and I know that’s the hot topic these days, it’s much more broad based than that. Coal conversions continue to happen across the country, in electrification of certain industries, additional EVs coming to the market, reshoring of manufacturing, all of that’s adding to power generation demand across The U. S. And so we’re playing a part in that. Much of that backlog I talked about earlier is focused on power generation, meeting some of this additional power generation demand.

But there’s more to feed. Multiple other drivers as well, but really, the big two are the ones that I just talked about. About. So this is a more detail on the LNG market. Here’s our footprint relative to a number of LNG facilities across The Gulf.

And you could see the LNG market is expecting this is Wood Mackenzie expected to more than double from 2024 through 02/1930. And again, that’s on a total market of just over 100 Bcf a day. So you just see the magnitude of incremental demand for this gas to this area, power generation, here’s just some more information on where a lot of that power generation demand is coming from, some of the different categories that I mentioned earlier. The one incremental piece I would add here is on the bottom right, you can see we’ve said we’re actively pursuing well in excess of five BCF a day of new power generation opportunities. Some of those are direct connections to data centers, but most of those are connections through utilities who are just trying to bolster the grid because a number of these factors are adding to the overall energy demands on their grids.

This is also a pretty interesting slide. We talk generally, we talk about additional natural gas demand on an annual basis. However, for those of us in the infrastructure space, we don’t build infrastructure based on annual averages. We build infrastructure based on peak demand. And the peak demand for natural gas in The U.

S. Has become greater. It’s peakier and is growing faster than the annual averages would suggest. Number of factors there. There’s more intermittent power generation supplies on grids, meaning the one remaining reliable dispatchable power source, natural gas, is called on more and more during those peak cold days and even during some of the heat the higher highest heating degree days to come on and backstop some of that intermittent fuel generation source.

The top two all time record demand days for natural gas occurred this past January. And we’re seeing that year in and year out. We’re seeing more and more peak records being broken. That adds to volatility. So not only does this help bolster some of the incremental natural gas infrastructure that we need to build, but it also transmission infrastructure that we need to build.

But it also puts a lot of pressure on additional or puts a lot of more additional demand for storage natural gas storage across the country because that’s really what how you help satisfy a number of these peak points here that are well above the amount of gas that’s being added to the grid on a daily basis. You need the storage in order to backstop that. So where’s all the gas coming from? The incremental gas will be needed is largely going to come from the Permian, which is number one, and the Haynesville, number two. But we’re going to need more than that.

We’re going to need more gas than just those two basins can supply given those really tremendous amounts of Appalachian area, Utica Marcellus up in number three. The problem with that is the infrastructure to take that gas away from that area and deliver it to end use markets is really challenged. Permitting is a challenge up there. The ability to pass those costs through to the end user is a challenge in the New England markets. But some additional natural gas is likely to be produced out of the Utica and Marcellus area.

The Rockies and some of the other areas in the Middle North States and then the Eagle Ford Basin down in South Texas will help backstop that. All of this is good for infrastructure players like us because additional bottlenecks will be created that will need to be debottlenecked, and that helps us identify and achieve additional growth opportunities and grow our EBITDA. So I said earlier, we’re well positioned to take advantage of the trends that are evolving across The U. S. Here’s a greater view of the footprint that we have across The U.

S, color coding our pipelines and our major transmission lines. And then some statistics on the right, which I think just drives it home. We transport 40% of all of The U. S. Gas that’s produced in The U.

S. We deliver about 45% of all of the feed gas that’s being exported today, and we expect to continue to go after additional opportunities for additional LNG feedstocks that will be needed, driving additional growth for us. About 50% of all of the exports to Mexico today, we deliver through our pipelines, and we represent about a 45% market share for all of the power generation from natural gas, the natural gas that’s going into power generation across the Southern States. And that’s important because that’s really where we’re seeing most of the power generation growth is in the Southern States. So we’ve got great footprints and really, really good market positions in all of those in all of those categories.

This highlights one of the points that I made earlier about the existing grid and network being filled up. In the top right part of this slide, you can see that the average utilization of our top five pipelines was 74% in 2016. In 2024, that’s now 87%. And since most of our pipeline capacity is contracted over an annual basis, that means our pipelines are running full. These pipes are basically full because there’s greater demand in the summertime, in the wintertime, and a lot less in the shoulder months.

That means, on average, they’re basically full. So from 2016 to 2024, when the natural gas market grew by almost 40%, a lot of that was accommodated by filling up existing networks, underutilized networks. And now from 2024 to 02/1930, when we’re growing by almost 20%, that’s going to take additional investment and additional infrastructure to accommodate as opposed to just relying on some underutilized assets across the country. And that’s translating itself into greater value for that service and people who are and then counterparties who are willing to sign up for greater terms. You can see on our Texas intrastate pipelines, the average remaining term for contracts has increased from 5.3 to 7.3.

And on EP and G, that’s grown from 5.8 to 8.1 years. So where are our major projects? This slide helps illustrate where we’re building the next set of natural gas infrastructure projects. The top three are our big ones. They’re all north of $1,500,000,000 each Kinder Morgan share.

The South System IV expansion project, which stretches over into the Carolinas, is number one. And then that is brought further into a more liquid corridor in Mississippi by number three, which really connects number one into those more liquid corridor areas, and that’s Mississippi Crossing. We sanctioned both of those projects last year. We’re very excited about them. We, now we’ve got to go and build them, which is going to be the more difficult part, but we got them signed up.

We’ve got great counterparties on those assets and those projects. And so we’re very excited about it, very strong returns. And number two, the other large one that we add here is within Texas. So we’re going to be able to get it to market a lot earlier. You can see the in service date there of the first quarter of twenty twenty seven versus South System IV and Mississippi Crossing, which are a little bit later.

And that’s the benefit of building intrastate assets versus interstate assets. But it’s a very nice pipeline asset for us because it takes gas from a very liquid pipeline node in Katy, Texas, West Of Houston, goes around Houston down into the Port Arthur markets, which is where there’s a lot of LNG players in Port Arthur, and there’s industrial players and petrochemical facility players as well. And then I would note the rest of the projects are all below $500,000,000 And while they don’t move the needle as much, they’re very capital efficient. These are going to be easier to build because they’re smaller. They fly under the radar a little bit more.

And we really like those types of projects as well because they’re debottlenecking, they’re a little bit smaller and are a little bit easier to permit and build. Outside of the natural gas business, we do have other business segments. This slide shows two of our business segments combined into one because they’re both focused on refined products. So our products pipelines business and our terminals business combined are focused on refined products. So gasoline, diesel and jet fuel.

We’re not really growing these businesses all that much, although they do have a little bit of automatic growth because of some of the rate escalators that they enjoy. You can see on the bottom right hand side, the slight growth, a very steady cash projection and then production and then a little bit of growth on top of that because of the automatic escalators. We view this as the heart of our cash cow businesses that are generating really nice cash, really healthy free cash flow. There’s not a lot of capital required to maintain these assets and so very high degree of cash free cash flow. And then we take that free cash flow and we use it to fund our natural gas projects.

And then the last business unit that we have is our CO2 segment. This is both our enhanced oil recovery business as well as our energy transition ventures business. It’s a very small part of our overall company, less than 10%. But enhanced oil recovery business, we take carbon dioxide, we inject it into old mature oil wells, very high returns on that business and a good amount of free cash flow. On the right hand side, you can see there between $250,000,000 and $550,000,000 a year.

And then part of that business is our Energy Transition Ventures business. This is where we’re trying to identify ways that we can participate in the energy transition landscape. The area that we’ve recently that we’ve focused on so far is the renewable natural gas business. So renewable natural gas is capturing biogas that’s coming off of landfills and wastewater treatment facilities, cleaning it up, processing it and then it becomes it’s equivalent to the molecularly equivalent to the natural gas that comes out of the ground. Future opportunities potentially exist in carbon capture and sequestration because of that enhanced oil recovery business that we have.

We have a particular expertise that would allow us to play in the sequestration business, so we’re looking at ways to do that. And then potentially down the road, there are some other opportunities, but those are earlier days. So really to wrap up here, we’re focused on natural gas, as we talked about, two thirds of our cash flows. We’re focused on the types of businesses that maintain steady cash flows, visible cash flows, protects us and insulates us from downturns in the market. We have an under levered balance sheet, which positions us well for future opportunities, allows us to take advantage of some of the dry powder that we have to go after some of those opportunities that are going to be that we’ve identified and some that are on the horizon.

A clear growth trajectory because of that $8,100,000,000 growth project backlog that will help us grow nicely for the next five years, and we expect to build on top of that. And then the management team is highly aligned with our investors with a 13% share ownership across the management ranks. So highly favorable natural gas market conditions, both domestically and internationally. We’ve got a nice financial backdrop here to help us take advantage of that. So we’re pretty excited about the opportunity set.

J. R?

JR, Host: Thanks, David. Great job there. We’ve got probably, what, three, four minutes before we need to go downstairs. So if we’ve got any questions from the audience, we can get into those. But maybe I’ll just start with one.

And David’s just kind of wanting to put a little bit of a finer point on one of the notes that you went through there, which is you go back to that project backlog, you increased it by $5,000,000,000 in basically one year’s timeframe. You said it’s under a six times build multiple. That build multiple went up less than one turn in total. So just when you think about the kind of the types of projects that you’re adding there, obviously, very attractive returns. But maybe talk about that in the context of the questions we’re getting right now around steel tariffs a lot.

Just kind of speak to maybe some of the ways that you’re able to maybe mitigate some of those costs or maybe pass through the costs and just kind of protect that return profile. So I think that would be just kind of a good way to connect to some current events there.

David Michael, CFO, Kinder Morgan: Yeah. Yeah, it’s a great question. We have a long history of building infrastructure. And so we use a lot of the lessons learned in previous cycles to help protect us in contracting for new major infrastructure. So in this current round of infrastructure builds, those three big projects I’ve talked about before, number one, we look to try to secure as much of the equipment and enough in as many of the service contracts as we can immediately after sanctioning so that we can lock in those prices so they’re not we’re not subject to unreasonable escalations, tariffs.

And so we did that, and we were able to lock in a lot of that material for much of these growth projects, number one. Number two, we look for ways to share in any cost overruns with our customers to the extent that they’re willing to do that. We were able to secure some cost overrun protection in some of these projects. And so that helps us to the degree that we’re not able to lock in as much of all of the project costs upfront than to the extent we run over, we’re able to share some of those costs. Contingency dollars in each of our project budgets so that we have a little bit of cushion in there should we see unforeseen things come to the project execution phase.

So among those three things, I think right now, we’re sitting very, very we’re sitting in a very, very comfortable spot. Of course, we have a long way to go to build and develop those things. But based on where we’ve started other projects, I think we’re in a really good spot with those big three.

JR, Host: Any questions from the audience here? Maybe just one more for me while we’ve got another couple of minutes. I think somewhere in the slides you said that there’s about seven Bcf a day of LNG projects that you’re still kind of pursuing contracting around, if that’s right. And so I guess kind of the connection there is you’ve had a $5,000,000,000 increase to the backlog, but there’s clearly a lot more that’s still on the come here. And I think the part that maybe we miss is with your Trident pipeline, you’re getting around Houston, which is a big obstacle.

You talked in the slides about how it’s hard to you can’t just build a lateral. You have to build these larger projects in a lot of cases. Just kind of connect some of those themes there where there’s a lot that needs to be done, not everybody can do it and maybe why Kinder Morgan is going to be one of the differentiated ways to play all this.

David Michael, CFO, Kinder Morgan: Yes. I think with traditionally, back in the first wave of the LNG facility build out, there really was just a there’s going to be one party who wins that one project to connect to Cheniere because they just need to connect Cheniere into the corridor of Texas intrastate pipes and you’re done. Now what you’re going to need to do is build to the corridor and then maybe build storage, but probably build even further to a more liquid point and in some cases, all the way back to the hub and so or to the supply basin. And so, I think what is exciting for us is we may not be the player that connects to this specific new train that’s being built, but we may have because of our massive footprint, we may have the advantage to build them to a liquid supply point or all the way back to the basin. And so the seven Bcf of additional LNG projects that we’re focused on, not all of those are directly connecting to the LNG plant, but they’re playing some role in that overall portfolio.

And so that’s pretty exciting. And that’s new this second wave or third wave of LNG build out.

JR, Host: I think with that, we will leave it here for the presentation, but feel free to follow us downstairs to the breakout. Thank you.

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