Kinder Morgan Inc - Class P (KMI) — Q3 2021 Earnings Call Transcript

Thank you, Michelle. Before we begin, I would like to remind you as we always do, that Kinder Morgan's earnings release today in this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934, as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read 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. Now every quarter, I open this call by talking about our financial philosophy at Kinder Morgan. I always mention strong and consistent cash flow and explain how we use that cash flow to pay a healthy and growing dividend, internally fund our expansion Capex needs, keep our balance sheet strong and opportunistically buy back our shares. I believe our shareholders understand and appreciate the strength of our cash flow even if there are varied positions on what we should do with it. But in a broader sense, if we examine what owning a share of Kinder Morgan really amounts to, I have 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 developments. Let me explain that optionality. We have entered the energy transition field with what I consider to be solid investments that Steve and the team will discuss further, and our cash flow gives us the ability to pursue those opportunities in size, if and only if the investments achieve a satisfactory return. And I believe that if we so desire, we will be able to attract new partners at a time of our choosing, whether it's public or private, to participate in those opportunities with us on terms favorable to Kinder Morgan. 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 various other energy experts, 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 that natural gas will be at the forefront of fulfilling those needs. If these projections are anywhere close to accurate, a company like Kinder Morgan 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 Kinder Morgan shareholder. I would add 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 need to be heated, and 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 Kinder Morgan provides you with a nice locked-in return with this dividend and then provides really good optionality for the future. And with that, I'll turn it over to Steve.

All right. Thanks, Rich. I'll give you an overview of our business and 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 Michels, will take you through the financials and then we'll take your questions. Our financial principles remain the same. First, maintaining a strong balance sheet. A strong 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 when we 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 two acquisition opportunities. We see both of those acquisitions adding value to the firm. Second, we are 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 could work even more efficiently. We implemented changes 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 Holland. We are already seeing the benefits in project management and other functions. Finally, we're returning value to shareholders with the year-over-year dividend increase to a $1.08 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 regardless 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 of schedule, 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 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 capacity to 700 BCF. We believe in the long-term value of flexibility and deliverability in the gas business that was demonstrated last winter, and 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 on the ongoing evolution in energy markets and in our ESG performance. As 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 diesel in our products and terminals business units, and our renewable natural gas projects. We are repurposing and building assets at our current terminal locations to support the energy sources of the future. Importantly too, that 69% is projected to come in at a weighted average 3.6 times 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. We will soon be publishing our ESG report, including both Scope 1 and Scope 2 emissions. We have incorporated ESG reporting and risk management into our existing management processes, and the report will explain how. In the meantime, Sustainalytics has us ranked number one in our sector for how we manage ESG risk, and two other ratings services have us in the top ten. This is increasingly a point of distinction with our investors, our regulators, and our customers. With all of this, our projects, these commercial transactions at our ESG reporting and risk management, we continue to advance the ball on ESG and the evolution in energy markets without sacrificing returns. We continue to focus on the governance in 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 believe the winners in our sector will have strong balance sheets, low-cost operations that are safe and environmentally sound, and the ability to get things done in 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. And so, I'm going to start with the natural gas business unit for the quarter. Transport volumes were up about 3%, approximately 1.1 million dekatherms per day versus the third quarter of 2020, and that was driven primarily by increased LNG deliveries and the PHP and service. Some of those increases were somewhat offset by declines on our West pipes due to the declining Rockies production, pipeline outages, and contract expirations. Physical deliveries to LNG facilities off of our pipelines averaged 5.1 million dekatherms per day. That's a 3.3 million dekatherm per day increase versus the third quarter of 2020 when there were a lot of canceled cargoes. Our market share of deliveries to LNG facilities was approximately 50%. Exports to Mexico were down in the quarter when compared to the second quarter of '20, as a result of new third-party pipeline capacity added during the quarter. Overall, deliveries to power plants were down as you might expect, with the higher natural gas prices. Our natural gas gathering volumes were down about 4% in the quarter compared to the third quarter of '20. But for gathering volumes, I think the more informative comparison is the sequential quarter. So, compared to the second quarter of this year, volumes were up 5% with nice increases in the Eagle Ford and the Haynesville volumes, which were up 12% and 8% respectively. In our Products Pipeline segment, refined product volumes were up 12% for the quarter versus the third quarter of 2020. Compared to the pre-pandemic levels, 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% in the quarter versus the third quarter of 2020. And sequentially, they were down about 4%. In our Terminals business segment, our liquids utilization presented remains high at 94%. If you exclude tanks out of service for required inspections, utilization is approximately 97%. Our Iraq business, which serves consumer domestic demand, is up nicely versus the third quarter of 2020, but they are down about 5% versus pre-pandemic levels. Now if you exclude some loss business and Iraq closure, so trying to get volumes on an apples-to-apples basis, volumes on our rack terminal slightly exceeded pre-pandemic levels. 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 our rack terminals versus the pre-pandemic levels. In our marine tanker business, we continue to experience weakness; however, we've recently seen increased customer interest. On the bulk side, volumes were up 19%. Very nicely driven by coal, steel, and Petco. Bulk volumes overall are still down about 3% versus 2019 on an apples-to-apples comparison. But if you just look at coal, steel, and Petco on a combined basis, they're essentially flat to pre-pandemic levels. In our CO2 segment, crude volumes were down about 6%. CO2 volumes were down about 5%, but NGL volumes were up 7%. On price, we didn't see a 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 lay 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 CO2 volumes will exceed budget, as well as oil NGL and CO2 prices. Better oil production is primarily driven by reduced decline in the base production and better project performance at SACROC. So overall, we're seeing increased natural gas transport volumes primarily from LNG exports, seeing increased gas gathering volumes in the Eagle Ford and the Haynesville on a sequential basis. Product volumes are recovering versus 2020. However, road fuels were down about 3% versus pre-pandemic levels versus flat with pre-pandemic levels last quarter, as we less likely saw an impact from the Delta variant. Versus our budget, CO2, crude oil production is outperforming, and we're getting some nice improvements on price. We're still experiencing weakness in our Jones Act tankers and the bulk, and it's been a little slower than we anticipated in bringing on new wells. But our producer customers have indicated that they'll continue bringing on new production, with some wells being pushed into 2022. With that, I will turn it over to David.

Okay. Thanks, Kim. So, for the third quarter of 2021, we're declaring a dividend of $0.27 per share, which is a $1.08 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 904 million, both of those increases driven by higher commodity prices versus last year. Our net income for the quarter was 495 million, up 9% from the third quarter of 2020, and our adjusted earnings per share was $0.22, up $0.01 from last year. Moving onto our segment in distributable cash flow performance. Our natural gas segment was up $8 million for the quarter. Incremental contributions from Stagecoach and PHP were partially offset by lower contributions from FEP where we've had contract expirations and lower usage and park and loan activity on our EPNG 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. The terminals segment was down $13 million driven by weakness in our Jones Act tanker business, partially offset by the continued refined product recovery volume exceeding 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. Those are partially offset by cost-savings we experienced this year due to our organizational efficiency efforts, as well as lower non-cash pension expenses this year versus last. Our JV DD&A was lower by $30 million primarily due to lower contributions from Ruby Pipeline. Interest expenses were favorable $15 million driven mostly by lower debt balance this year versus last year. Our cash taxes were a favorable $37 million, and that was due mostly to 2020 payments of taxes that were deferred in the second quarter into the third quarter. So, the full-year cash taxes are expected to be just slightly unfavorable to 2020 and slightly favorable to our budget. Sustaining capital was unfavorable this quarter, $64 million driven by spending in our natural gas segment. And that's only slightly more than we budgeted for the quarter, though for the full year, we expect to be about $65 million higher than budget, with most of that variance coming into the fourth quarter. Total BCF of $1.13 billion or $0.44 per share is down $0.04 from last year. Our full-year guidance is consistent with what we provided last quarter, with DCS at $5.4 billion and EBITDA at $7.9 billion. Moving on to 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 non-recurring EBITDA generated during the first quarter, during the winter storm event. And our long-term leverage target of around 4.5 times has not changed. Our net debt ended the quarter at 31.6 billion down 424 million from year-end and up 1.423 billion from the end of the second quarter. To reconcile that change in net debt, for the quarter, we generated 1,000,013,000,000 of BCF. We paid out dividends of 600 million. We've closed the Stagecoach and Kinetrex acquisitions, which 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. For the change from year-end, we generated 4.367 billion of DCF. Paid out $1.8 billion of dividends, we spent 450 million in growth Capex and JV contributions. We had the $1.5 billion Stagecoach and Kinetrex acquisitions, the 413 million come in on the NGTL sale, and we've had a working capital use of $600 million, mostly interest expense payments. And that explains the majority of the change year-to-date, and that completes the financial review. Back to Steve.

Okay. We'll open it up for questions now and as we usually do, we'll ask you to limit your questions to an initial question and one follow-up. And then if you have more, get back in queue and we will get around to you. Michelle?

Hi. Good afternoon, everyone.

Good afternoon.

Maybe let's start off a little bit here. You've been very active the last few quarters on the acquisition in capital front with respect to RNG, renewable diesel, and so forth, sort of expanding on your energy transition plan. You've added to the backlog and so forth, like there have been fewer updates on the carbon capture side. A lot of companies and peers that made some major announcements recently to have models on carbon capture and sequestration. Is Kinder planning to pursue carbon capture as aggressively as some of these announcements that we've seen? Just wondering if you can sort of give us an update on kind of the strategy you're approaching. You talked about some commercial arrangements last time, just some broader thoughts if you may.

Sure. Yes, we are involved in and pursuing carbon capture opportunities. I won't express those in terms of comparisons to others and the announcements they've made. I want to be really clear about this. We view this as an attractive opportunity, but it will take some time to develop. And I think that's important to understand. The 45Q tax credits, as they were finalized at the beginning of this year, do make investments primarily related to capturing the flue stream off of ethanol facilities and gas processing facilities, and primarily those in West Texas, which are adjacent to our existing CO2 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 primacy on that. They have to apply for that at EPA, but that will 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 pipe, it's much more efficient to move CO2 in liquid form. That requires high pressure, special purpose pipe, which we have; 2,000 TSI 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 smaller volumes, shorter distances, there are potentially some repurpose opportunities. I think the break-even cut off there is like 350 a day or less, in order to make that more attractive. But otherwise, you need specialized facilities to move it efficiently and to inject it into the ground. And so, we think we've got an advantage in that. We've got to get the permitting shortened up, and we got to get customers who are nearby our infrastructure on board, if you will. But 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. Appreciate the color there, Steve. Maybe for a follow-up question. Given the challenges with securing natural gas by many customers during which you’re sort of hearing during the first quarter, you’ve got higher gas prices right now as well also. Are you seeing interested or actual contracting activity around your system, say in Haynesville, or any of your pipeline and storage assets more broadly where we can see some potential growth where you sort of take this spot environment that's pretty juicy right now and sort of convert it to some longer-term contracts?

Yeah, we've signed up some incremental business in Texas and we have 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 wakeup call on the underlying value of storage and we are working on additional incremental business. We have talked publicly with regulators and others about a project that would add additional delivery capability in the state of Texas that would help support more power and human needs, loads even outside of what is really our current more active market area. But we think too that we're seeing that really across the country, as things tighten up in these markets, people are putting value as they should on firm deliverability. And let's face it, supply hasn't quite kept pace with demand, particularly as export demand has grown; power demands come off a little bit, as Kim mentioned, but it's fairly strong and industrial demand is strong. Residential commercial is seasonal, but the demand 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 the generation 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 in real transactions.

Hey, Good afternoon, everybody. Steve, I asked you about gas macro last time, and didn't think I'd ever ask you again, but here we are at $5 to $6 gas. And so, it seems like a lot of change since August. So, would just love refresh thoughts on that front in terms of what you think is going to take to kind of normalize prices here. To your point, we haven't really seen that supply response yet. What do you think that's going to take? What are producers telling you they need to see and when? And then alternatively, Kim, you mentioned that some of the power plants have taken less deliveries because of the higher pricing. Is demand destruction something we need to worry about at these price levels?

Okay. Let's start with the first topic on the gas macro, and I'll invite Tom to elaborate on this. As Kim mentioned, we are beginning to see some sequential improvement from Q2 to Q3, and there has been more active discussion with producers who are bringing in some rigs and starting to share their development plans. There have been some timing changes in the Bakken, as Kim pointed out. Generally, producers are responding, but they are not acting as quickly as they did during the last downturn. Many have noted that publicly traded producers remain very disciplined about returning to the market. They are benefiting from higher prices but are cautious due to concerns about capital discipline. However, it is worth noting that about half of the rigs in the Permian are now operated by private companies. Therefore, supply will resume, regardless of which source of capital drives it, but the recovery is occurring at a slower pace.

I think you covered it well.

Okay. Do you want to discuss power demand at the current pricing?

Yes. I mean, we have seen 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 in prior years. And then a lot of that has to do with full retirements and just the need to backfill renewable power on an intermittent basis. And 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 their gas-fired power capabilities on a longer-term basis. I think that all looks good for the future.

Great. That's helpful color. Second one, just maybe getting your latest thoughts around capital spending going forward kind of on a multiyear basis. Historically, you guys have talked about $2 billion to $3 billion spending in any given year. And then, of course, with the pandemic and the slowdown, I think that fell to sort of $1 billion or less, was the new number. But since then, we've seen the outlook kind of dramatically improve, especially when you consider a lot of the energy transition opportunities in front of you that Rich mentioned earlier. And 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?

Yes. When we adjusted our outlook from 2 to 3 to a lower estimate of 1 to 2, we believe that this still represents a reasonable expectation. This year, we anticipate spending under $1 billion on expansion capital, around $800 million. This reflects the current market activity. Some new projects are coming in from the renewable diesel and renewable natural gas sectors we previously mentioned. However, we still have about 53% of our backlog focused on natural gas, so we feel that the 1 to 2 range is appropriate. There are two important points to consider. First, large mega-projects are becoming increasingly difficult to permit and construct. Second, most growth is expected along the Texas and Louisiana Gulf Coast, where gas demand is increasing. We've started hearing from players in the Permian about the future need for another pipeline. While this isn't urgent right now, their timeline for when it might be necessary has accelerated. These discussions are still in the early stages, influenced by current crude and natural gas prices. However, it's likely that massive projects will face hurdles in becoming a reality. Therefore, we believe that the 1 to 2 range remains suitable, emphasizing growth based on our existing network with attractive returns.

And let me just emphasize, as Steve said so many times that we're going to be very disciplined in this approach to spending capital. Make certain that these are satisfactory returns. And 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 it.

Hi. Good afternoon.

Good afternoon.

I want to touch on carbon capture a bit more here and just wanted to get your thoughts on how you think this can unfold. And do you think that the hub concept is really needed to move forward efficiently, what the University of Houston and RISE in Colombia have discussed in their papers, or do you think that stand-alone projects on carbon capture can move forward by themselves?

We are looking into standalone projects and are open to discussing larger opportunities as well. Given our expertise in building, owning, and operating CO2 pipelines, we might also consider participating in the transport aspect. However, as I've mentioned before, there's still a significant amount of work to be done before we can see those larger projects materialize. Jesse, do you have anything to add?

No, I agree. I think the standalone probably we quicker; you just have multiple parties that have to come together to get it 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 or do you see kind of the two projects that already have commercial backing and moving forward that are servicing ethanol production in the CO2 off that in the upper Midwest? Is that the type of thing that Kinder could get involved with or just sticking to your own asset base?

We have examined carbon capture and sequestration, and I want to stress that it's essential for achieving long-term climate goals. Some work is needed in this area. I aim to set realistic expectations about how quickly we anticipate progress and where the initial projects will occur. While we are focusing on our existing network, we have also had talks with parties outside of that network regarding the potential for carbon capture and sequestration. These discussions are still in the early stages, but we are open to exploring options if the returns are favorable.

Thanks. Good afternoon, everyone. I wanted to go back to Rich, your opening comments, you referenced potentially, I think private investors perhaps partnering with you to invest in the business. Can you just expand on that comment? Are you sort of suggesting public markets may or may not be there so you might be looking at other sources of capital?

No, what I'm 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 mass and 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 will be very favorable to us. We think this is a platform that deserves and 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. I wanted to ask a little bit about the EOR business, just given the increase in oil prices, I guess. Have you 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 lift the backend of our hedge profile. So that's a positive that we are seeing some organic growth within our existing assets as prices increase. So, we think that will continue.

Hi, good afternoon. Just to follow-up on the gas storage comments and your commentary there on positive signs of renewals. Could you just generally frame up for us where contracted capacity is today or relative to nameplate or capacity available today for potential customers that as you say, are waking up to the value proposition of gas storage?

You need to consider this in several different aspects. I mentioned that we have it under contract, and we're exploring a storage expansion opportunity, particularly in Texas. Each year, we have storage contracts that are rolling off and renewing. We aim to keep these contracts largely filled as they occur. We are seeing, and expect to continue seeing, improvements in those values. I want to emphasize the point about categorizing these opportunities. For instance, we have about 30 to 40 BCF of flexible storage in our Texas intrastate business, and Stagecoach is also a flexible storage asset where we see the most appreciation in value. In terms of some of our shorter-term storage services, like park and loan in a backward dated market, the chances to store gas for customers are more limited. As a result, that shorter-term business has fewer opportunities. However, overall, we believe storage is becoming more valuable, which has influenced the attractiveness of the acquisition opportunity we encountered.

Helpful. Thanks, Steven. And then switching gears, a small piece of business. But can you talk a little bit about the bulk business and being closer back towards 2019 levels? Can you talk about just some of the dynamics we're seeing with all commodity inflation and supply dislocation? You see some of this backdrop as a positive tailwind for both businesses, either on the pricing side or the capacity utilization side?

Sure. We see most of the growth in the coal area where we were up 40% on the quarter and in the steel area where we're up 38%, which kind of mirrors what you're seeing from an international standpoint. U.S. production was up 39% and exports were up 45%. So, we've been following along to that. We're back at our Pier 9 facility, which is where the predominance of our export business is, back to 2019 levels as we stand today.

Hi. Good afternoon. So, having closed the Kinetrex steel now, can you just give an update on, I guess, the opportunities that you see in RNG, and whether you think that'll be a significant part of your capital plan over the next several years, either through acquisitions and or 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 rent exposure there?

Kinetrex has three projects that were already under contract when we closed the deal. Those projects have been initiated and are on track. There are numerous landfill opportunities, although we face competition. We believe we can add scale to this business, which presents attractive returns. The capital required for each installation ranges from $25 million to $40 million. It's still early to determine the timing and the extent of our success, but we are monitoring the situation closely. There is considerable interest, and we are engaged in discussions regarding a substantial number of additional landfills. However, we have operational work ahead of us. This venture is economically viable, and we believe we have the scale to potentially commercialize it more rapidly than others. While we are optimistic, it's difficult to quantify the precise outcomes at this moment. In the voluntary market, we are having productive discussions with potential buyers who are interested in purchasing without the RINS value and volatility, all while securing favorable returns. The interest in renewable natural gas is significant due to ESG commitments. Similarly, there is a strong interest in the transportation sector, as electrifying heavy-duty trucking poses technological and economic challenges. Compressed natural gas and LNG remain appealing alternatives that assist large fleet operators in achieving their climate goals at competitive costs. Additionally, we have sold most of our RINS inventory for the year at prices that exceed our acquisition model expectations.

Hey, good afternoon. I guess the first question is really around LNG. You've got 2 Bs a day coming online for LNG exports over the next 12 or 18 months. Could you maybe walk through how you think this is going to impact your transport volume, and then if you're going to get some pull-through on the G&P side. I know that you said you got about 50% market share, so should we expect about 50% market share on the incremental 2 Bs that come online over the next 12 to 18 months?

Yeah, I mean, so we do have incremental projects that we're serving. We don't have contracts with both of those facilities, but we certainly have a lot of business with Cheniere, and as their capacity grows, we certainly have commitments to grow with them. We do have other projects that we are in active discussions on projects that we believe will be FID probably sometime next year. And we think we'll get our share of that capability as well, but that doesn't end our backlog right now.

Okay. All right. And then one follow-up, just sticking on the LNG thing and thinking about LNG in response resource natural gas. Are you having LNG operator's request response resource natural gas as a feedstock? And today is actually responsibly source natural gas getting a premium out there in the market today.

The transactions we've completed so far haven't involved a premium, but recently, interest has surged. LNG customers are increasingly concerned about the overall carbon content of their cargoes, including methane emissions. They have indicated that their main issue is ensuring they work with producers who utilize proper techniques. There is significant interest in this area, especially as they seek to place cargoes in Europe. We are collaborating closely with them to ensure we fulfill our responsibilities. This topic is a key concern for our LNG customers.

Hey, good afternoon, everyone. I'll only ask one because I know everyone wants to get to the Astro Game, but around the $64 million emissions reductions project on the ship channel, I'm just curious about the evolution whether there's going to be a return on that project and also is that something I guess that's just specific to the HFC or can you take what you're doing there and apply it to some of your other hubs as well? Is there interest in doing that?

Yeah. I mean, it's a project where we've got existing vapor combustion units, and we're replacing those vapor combustion units with vapor recovery units. And so, there is an economic return. The economic return comes from, as we capture those vapors, then we can sell that product. And then the other vapor recovery unit is a little less than a tenth of combustion, and so there's natural gas savings. So, there is an economic return associated with the lower cost of running the equipment and with the volumes that we're recovering. And that gets us to a nice economic return. We haven't counted anything in the return for the emissions reduction, but we are going to get a 72% reduction in the emissions from that facility on this project.

And Kim, do you think you could tell us about a slight decline in that? Is the Board beginning to assign a value to CO2 implicitly when discussing projects?

We have not assigned a price to CO2 when discussing projects. It is not something we quantify. However, these projects must meet certain quantitative criteria.

Hey, thanks you all 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 to do long-haul capacity? That's question one. Question two, steel prices are through the roof; labor is up a good deal. How should we think about if new larger pipelines are needed for one or two basins? What cost inflation means for potential returns or potential tariff levels?

Okay. Regarding the Permian takeaway, we previously mentioned that the need would arise around 2025. Based on some recent discussions with customers, it seems that this timeline might advance by a year. I want to emphasize that the actual need and contract signings can happen at different times. Therefore, we will engage in commercial discussions to determine if there is genuine demand, and we will observe how this unfolds over the next year. Tom, could you share your thoughts on the timing for the Haynesville?

Yeah. So, there is one project that is FID that will be in the market in 2023. So that will help relieve some takeaway pressure. And then we think there is a need for some expansion projects sometime in the mid-2025 to 2028 time frame for additional BCF or so.

And then, on your question on steel costs and the like. Yes, they have absolutely gone up. We were looking at some information on up rolled coil, which is what goes into the pipe mill to make pipelines. That's up three times year-over-year; it's up 90% or so year-to-date. But the thing about it is that 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 quote 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. We've included in past projects steel trackers; sometimes we needed them, sometimes we didn't. And the other thing we're doing really across the board on materials is when we're evaluating a project for approval, we make sure to ask, has this been updated for current equipment, materials, and steel prices so that we make sure that we get that priced into the deal. To your real question, don't think it is an obstacle to getting an additional long-haul pipe done.

Good afternoon. So just looking at Terminals, I think the release would be for Jones Act. It was a key driver of some of the softer margins there. Are you seeing counterparties that exercise any of those renewal options, or do you expect mostly spot exposure as we look at 2022? And then just a related question, that should be expecting any additional idling to OpEx there?

Okay. John?

Yeah. We don't expect any additional idling. We were able to weather the storm through COVID with no impact. It hit us this year like it hit the entire industry. 25% of the capacity of roughly 45 vessels was idled at any given point this year. We had two that have been idled all year and rough rule of thumb is $3 million per quarter per vessel. We've been able to re-contract all of the other vessels as the year 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 forward into '22, is about 22% of the fleet days.

I appreciate that update. Switching gears to hydrogen, which is obviously a longer-term opportunity, we've seen several pilots and just this morning there was a significant announcement regarding steel production. Are you noticing any requests for blending in the transportation network as we look a few years ahead?

We are engaging with customers about this topic. As you mentioned, there are still some economic challenges. This doesn’t mean it won't happen, but it does require a strategy to address those economics, such as the ability to pass costs onto retail customers in a utility context. This is similar to renewable diesel in that it is likely to be part of the long-term solution, but we are currently in the early stages with pilots, experiments, and announcements. At this moment, we do not have any concrete commercial activity.

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 Bakken, the volume picks up has been somewhat slow. Did I hear that correctly? And if so, what in your mind changes that trend? Obviously, the commodity strip is fairly strong looking forward.

Yes. I believe the situation is evolving regarding producers' plans to continue adding wells to our system. They are indeed doing so, and the rigs are operational, drilling, and completing their tasks. It seems the connections were a bit slower than we had expected for the year. However, we still view this as a strong growth opportunity for those assets, both in gas and crude.

Got it. So, it's just a matter of time.

Yeah.

The second question is related to the volatility we've seen in the natural gas markets and the spreads that have dropped. I was just curious, has that kind of changed your view on the Ruby Pipeline? Obviously, some of the contracts that have rolled off. And I was curious in actually seeing the impact of these spreads widening on that pipeline and how should we think about that asset going forward?

Not particularly on Ruby. From time-to-time there's some activity there depending on what's going on with the pipelines coming down from Canada, but no change in our outlook there. And no change in our view on Ruby, which is we're going to make, as Kinder Morgan, an economic decision for Kinder Morgan shareholders when the debt comes due.

Thank you. Obviously, everybody wants to get off and watch that baseball game up in Boston. Thank you very much.