KMP Updates: Expands Condensate Processing Facilities on Expected Demand

Kinder Morgan Energy Partners (NYSE:KMP) has announced further investment of $130 million for building a petroleum condensate processing facility on the Houston Ship Channel. The new facility will split the condensate of crude oil into fractions like light and heavy naptha, gas oil and kerosene. The condensate processing facility has an initial capacity of processing 25,000 barrels per day (BPD), which can be increased to 100,000 BPD. Kinder Morgan is pushing hard to expand its terminal and pipeline capacity at various locations, keeping in mind the rapid development in the U.S. Energy sector. KMP 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 (NYSE:XOM).

Previously, we discussed its $400 million JV with TransMontaigne Partners L.P to build a new oil terminal on the Houston Ship Channel and a $210 million upgrade project at its Edmonton Terminal. ((Kinder Morgan Announces Investment of Approximately $130 Million in New Condensate Processing Facility, KMP)) We take a quick look at the development and the value it adds to the company’s terminals business.

We have a $78.24 price estimate for KMP, which is roughly in line with the current market price.

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The new condensate processing facility is located near its Galena Park terminal on the Houston Ship Channel, a region the company has been investing in aggressively with the construction of a new oil terminal and up-gradation of an existing terminal currently under progress. The company aims to provide its customers with best connectivity to crude oil and facilities like refineries, chemical processing units, gasoline blenders, finished product storage, outbound pipelines and marine facilities on the Texas Gulf Coast. The project is expected to complete its first phase in January 2014, right after the Edmonton up-gradation project completes in Q4, 2013.

This project is an extension of the planned expansion of Trans Mountain Pipeline (a subsidiary of Kinder Morgan) from 300,000 barrels per day (bpd) to 500,000 bpd by 2017. KMP is moving aggressively to setup additional crude and natural gas processing, transportation and storage facilities to remain ahead of the demand curve, anticipating an increase in the production from the shale deposits in the west coast over the next few years. Moreover, the massive Trans Mountain Pipeline and its integration with the various storage terminals and the processing facilities, ensures that Kinder Morgan becomes the most sought after transporter of oil produced from Canada.

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