How Kinder Morgan Partners Gasses up to $89
Kinder Morgan Partners (NYSE:KMP) is a subsidiary of Kinder Morgan Inc. that owns and operates pipelines and storage terminals throughout the U.S. It operates in five main business segments: Products Pipelines, Natural Gas Pipelines, CO2, Terminals and Kinder Morgan Canada. The company faces direct competition from other pipeline and energy companies like Enterprise Products Partners (NYSE:EPD), Williams Companies, Inc. (NYSE:WMB) and from pipeline subsidiaries of energy giants like Exxon Mobil Corporation (NYSE:XOM).
Here we highlight 2 of the most important drivers for KMP’s business and the upside scenarios associated with each of these drivers.
1. Average realized shipping price of natural gas: We estimate the natural gas shipment price to increase by 15% in 2011 and expect it to increase further.
2. Natural gas shipments: We estimate a 5% increase in the shipment numbers for 2011 and expect the growth to increase in the following years.
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- How KMP Plans To Benefit From Increased Consumption of LNG
10% Upside Scenario: $89 Trefis Price Estimate for KMP
1. Increase in Natural Gas Shipments (+5%):
With crude oil prices going up rapidly, people are looking for cheaper energy alternatives. Using natural gas, which on energy terms and cost is comparable to coal or is about one third the cost of crude oil. The high octane number associated with natural gas and its cost effectiveness have led to its extensive deployment for industrial use and commercial fleet.
In a scenario where the demand for natural gas surges further, pushing up the annual natural gas shipments to 4,200 billion cubic feet during 2012, there could be potential upside of 5-6% to the Trefis price estimate.
2. Upside to the Natural gas prices (+5%):
Our current estimation of natural gas price is $1.8 per billion cubic feet in 2013. With the rising industrial usage of natural gas, the demand is expected to rise faster than that of other fuels. North America consumed an estimated 742 billion cubic meters (Bcm) of natural gas in 2009. This number is expected to rise further to 804 Bcm by 2014, representing a growth of 8.4%. Shipping capacity may not grow at the same pace leading to an increase in the shipping costs. If the natural gas shipment price averages at $2.11 per billion cubic feet in 2013, it lends 5% upside to KMP’s stock.
Drag the trend lines to test your own scenarios.