Kinder Morgan Exec: Don’t Count Out Midstream in M&A Frenzy

The rash of blockbuster M&A deals consuming the E&P sector won’t spread beyond upstream, most midstream executives say.

Kinder Morgan’s Allen Fore is not among them.

“It is an interesting time in the industry and we are, every day, looking at opportunities where we can match our existing footprint and portfolio with other companies, with other assets, with related industries,” the midstream giant’s vice president for public affairs told attendees at Hart Energy’s DUG GAS+ Conference and Expo on March 27. “There’s a lot of opportunity out there and I think we are really well-positioned as a company to take advantage of a lot of these opportunities.”

Fore emphasized that he wasn’t prepared to make any groundbreaking announcements at the conference. Past Kinder deals include its $38 billion purchase of El Paso Corp. in 2011, its $1.8 billion acquisition of NextEra’s South Texas gas pipeline assets in late 2023, buying renewable gas developer Kinetrex Energy for $310 million and North American Natural Resources for $135 million.

And Kinder Morgan’s cash holdings are not exactly burning a hole in its corporate pocket. Any transactions would have to make sense and complement existing assets, Fore said.

“Sometimes that’s building, sometimes that’s buying,” he said. “And we’ve done both of those and to continue to do both of those. So, I think 2024 is going to be an interesting year. And 2025.”

If you’ll permit us

The building component of the growth equation is always tricky, and Fore believes that passage of permitting reform legislation in the current divided Congress is unlikely. There are, however, ways to manage regulatory roadblocks and Kinder Morgan has “yet to have a project that has not been able to move forward specifically because of permitting.”

One of the company’s success stories involves its operations in, of all places, California, where Kinder dominates the petroleum products transportation market.

“Now, we’re not going to be building any new petroleum products lines in California,” he said. “That’s just not going to happen.”

Maintaining the thousands of miles of existing pipelines, which provide jet fuel to airports in San Francisco, Los Angeles and San Diego, as well as gasoline and diesel jet fuel throughout the coastal California area requires applying to the state for air quality and incremental pipe replacement permits.

“In our experience, is it complicated?” Fore said. “Yes, but is it doable? Yes, because the state of California understands the importance of keeping that product moving in a safe way. And if that’s the way we talk about it, in most instances we can receive a fair consideration of what we were proposing to do.”

The “doable” definition has changed over time. In 2009, Kinder put the Rockies Express pipeline into service. The 1,679-mile pipeline moves natural gas across eight states from Colorado to Ohio.

“You’re not going to see a pipeline like that again,” he said. “Think about that. Eight states, eight state approvals with a federal regulated project. That’s just too big and too complicated and too risky.”

What is more realistic in many ways in this era is incremental expansion, as in “this pipe will connect at this point and move this from one side of the state to the other, maybe from one state to two states,” he said.

It’s an easier message to communicate to regulators, said Fore, who served in numerous governmental roles including assistant attorney general of Illinois, before moving to the private sector.

“We can’t move our assets out of California, Illinois or New York,” he said. “They’re there. We need to live and work and operate in the regulatory environment that we’re in. Can it be better? Yes. Can it be more like Louisiana, Mississippi, Texas, Alabama or Florida? Sure, but it’s manageable at the end of the day.”

Room to grow

Sometimes, the permitting process with the government goes more smoothly, such as when the government is sponsoring the project. In Tennessee, Kinder is working with the Tennessee Valley Authority (TVA) to replace a coal-fired power plant with a natural gas-fired facility.

Kinder is in the final stages of state approvals and obtaining final land acquisitions. Cumberland is expected to begin construction later this year and the company is looking forward to future projects with TVA.

Fore said that Kinder Morgan is always looking for opportunities to expand its presence in the natural gas space, including its Gulf LNG expansion project in Mississippi and Elba Island in Georgia. He anticipates tremendous opportunities in LNG, even with the Biden administration’s pause in project approvals.

One of the company’s biggest areas for growth is in renewables, he said. Kinder Morgan controls 10% of the renewable diesel market in California, with plans announced to build hubs in the Sacramento and Los Angeles areas.

Kinder Morgan also is one of the largest transporters of CO₂, Fore said. “That’s in our wheelhouse to get into that space and we’ve got a number of opportunities we’re looking at in that regard.”