Kinder Morgan, based in Houston, is one of the largest pipeline-transportation and energy-storage companies in North America. Along with some 37,000 miles of pipelines and 180 terminals, it transports and stores natural gas, refined petroleum products, crude oil, ethanol, carbon dioxide and other products. Nearly all of the company’s assets are owned by Kinder Morgan Energy Partners (KMEP), one of the nation’s largest publicly traded pipeline master limited partnerships, with an enterprise value of more than $30 billion.
Along with such breadth come a lot of moving parts, but the company keeps a low-risk profile by staying focused on its core competencies and operating like a giant toll road, receiving a fee for services, providing connectivity for its customers and avoiding commodity-price volatility whenever possible. Today, the company is undergoing a series of major expansion programs and plans to invest billions of dollars in new and expanded infrastructure across North America.
Company president Park Shaper celebrated his 11-year anniversary with Kinder Morgan in January. He is a member of the three-person office of the chairman and serves on the board of directors for all Kinder Morgan companies, including KMEP, Kinder Morgan Management LLC and Kinder Morgan Inc., a private entity.
Previously, Shaper was president and director of Altair Corp., an enterprise focused on the distribution of web-based investment research for the financial services industry. In addition, he previously held the position of vice president and chief financial officer of First Data Analytics, a wholly owned subsidiary of First Data Corp. He has also been a consultant for The Boston Consulting Group.
Shaper holds a bachelor of science degree in industrial engineering and a bachelor of arts degree in quantitative economics from Stanford University, along with a master of business administration from J.L. Kellogg Graduate School of Management at Northwestern University. He serves as trust manager for the Weingarten Realty Trust and sits on the board of directors of the Alley Theatre and the Children’s Museum of Houston.
Heading into 2011, the midstream-energy sector is faced with an array of opportunities, says Park Shaper, president of Kinder Morgan Energy Partners.
MIDSTREAM: Is KMEP on a growth spurt?
Shaper: Yes. In the summer of 2010, we announced our Eagle Ford Gathering LLC, a 50-50 joint venture between Kinder Morgan Energy Partners and Copano Energy LLC in the Eagle Ford shale, among others. We contributed some of our capacity on our pipelines that run from South Texas up to the Houston Ship Channel, and Copano contributed some of its processing capacity at its Houston Central plant. Also, the joint venture is building another pipeline to access more Eagle Ford production. It works as a combination of both companies’ strengths. We’re very excited about it.
MIDSTREAM: Are you confident of your producers' commitments for the new take-away capacity?
Shaper: Absolutely. In fact, we had customer commitments prior to November, which is when we signed up Chesapeake Energy Corp. Now, we are completely committed for the initial phase of capacity. We have an opportunity to expand that pipeline, so we are in discussions with producers for that and other opportunities in the Eagle Ford. The Eagle Ford is a great development for us, because it sits on top of assets that we already have.
MIDSTREAM: Do you have similar plans for the Appalachian Basin?
Shaper: We are looking at building a natural gas liquids (NGLs) line that would run out of the Marcellus up to Sarnia, Ontario, where there are a number of processing facilities and significant demand for NGLs. Also, our Cochin pipeline currently moves NGLs out of Alberta, down through Chicago and back up into Windsor, which is almost to Sarnia, so we are already familiar with those end users. If we build the Marcellus NGL line, we will be able to take advantage of some of the existing capacity on the Cochin line. We are in the process of securing customer commitments for that, so it’s still in the developmental phase.
MIDSTREAM: It seems that the shale plays are definitely on your radar.
Shaper I think the shale plays present good opportunities for the midstream energy business. The shales represent shifting sources of gas supply, so they require additional infrastructure. That means a couple of things. First, it means there is incremental infrastructure that needs to be built, especially on the gathering side and on the processing side. There is some potential for the long-line side, although we have already seen several major interstate lines built, so I don’t think there will be the same number of major interstate projects that we have seen in recent years.
Second, it means that to move the product to market as efficiently as possible, we need to take advantage of existing infrastructure whenever we can. We should only build what needs to be built. That bodes well for us, because we have a huge existing footprint that can access all of the major shale plays. We only need to extend some assets, and increase the utilization of the rest. I think we are a decent analog for the midstream sector in general, as other players find similar opportunities.
MIDSTREAM: Do you have concerns about the aging of some of the existing U.S. infrastructure?
Shaper: Not really. We have a very thorough maintenance and remediation program that goes beyond compliance with all of the regulations. We are very focused on safety and the environment. When an asset is down, it is not generating revenue for us, so being focused on that is not just the morally right thing to do: it is absolutely the right thing to do from a business perspective.
We spend hundreds of millions of dollars each year to maintain our assets and be on the forefront of identifying whatever issues might be out there. At KMEP, we are very transparent about our performance and publish our safety statistics on our website as we have done for years. It is absolutely critical to maintain these assets well. Pipelines are the safest mode of transportation for these products, by far, and that will only get better as we go forward.
MIDSTREAM: Do you see other opportunities on the horizon?
Shaper: The increased consumption of ethanol and the potential for biodiesel are other opportunities for our sector, especially on the terminal side, and we expect that to grow. Also, the focus on NGLs and oil production, due to relative pricing, creates opportunities. In our CO2 segment, we produce some crude oil and a fair amount of NGLs in West Texas. Clearly, that is one area where we take commodity-price exposure, although we do everything we can to hedge the short-term impact of price fluctuations away.
MIDSTREAM: How are your other projects coming along?
Shaper: Well, of course, we have the Rockies Express Pipeline, the largest natural gas pipeline that has been built in the past 20 years, which is now moving 1.8 billion cubic feet per day into Clarington, Ohio. In addition to that, we brought online a number of other projects in the past few years. The Midcontinent Express accesses the Barnett shale and runs across Texas, Oklahoma, Louisiana, Mississippi and into western Alabama. Recently, we started up the Fayetteville Express Pipeline, a joint venture with Energy Transfer Partners. Also, our Louisiana Pipeline, which runs from the Sabine Pass liquefied natural gas terminal to interconnects with a number of interstate pipelines in Louisiana, is on line.
Those are all new projects on top of our existing assets. In the Rockies, we also have the Kinder Morgan Interstate, Trailblazer and TransColorado interstate pipelines. In Texas, we also have a big presence in the intrastate space, including our Eagle Ford assets and a number of pipelines that originate in South Texas and run to the Houston Ship Channel, and elsewhere across East Texas. We also access gas from the Permian Basin, take it though the Katy Hub and into the Houston market.
MIDSTREAM: And on the oil side?
Shaper: We are not as big on the crude oil side, but we do own KMEP Canada, which has the largest concentration of our oil pipelines, including TransMountain, which runs from Alberta over to the West Coast. It’s the only pipeline that is transporting Alberta crude to the West Coast. It goes there for consumption in Washington state refineries, the single refinery in British Columbia and for export out of our Westridge Marine Terminal in Vancouver.
We also have our CO2-transporation business, out of southwestern Colorado down to the Permian Basin, for third-party consumption. We also own the oil-producing fields in the Permian that we flood with CO2.
MIDSTREAM: Do you have any near-term plans for your product-pipeline portfolio?
Shaper: We have a number of assets in our product-pipeline segment, such as the Plantation, Central Florida, CalNev, the Northern and the Pacific lines, and we have had a number of significant expansions on them. Also, we modified the Central Florida line, which originates at the Tampa terminal, accesses other terminals in the area and runs to Orlando, to handle ethanol.
We have expanded some of our terminals to handle ethanol and some of our West Coast terminals to serve military customers. Given the increased consumption of ethanol, which typically is not moved through pipelines, we have some decreased throughput on some lines, but have expanded our terminals. Ethanol is usually moved to terminals, via railways and trucks, where it is blended into the gasoline stream. Ethanol terminaling is another good business for us, even though it has meant slightly lower volumes through our pipelines.
MIDSTREAM: Is that what led to your investment in Watco Companies, a rail carrier, in December 2010?
Shaper: That investment is slightly different, although it grew out of our terminals business segment. We got together with Watco, which is the largest shoreline railroad system in the U.S., because they were doing a lot of things on the terminal side. There are good opportunities for us to work together. It started with this preferred investment in them, but we believe it will lead to additional expansion or acquisition opportunities for us and for Watco.
MIDSTREAM: Given KMEP’s extensive holdings, what is your general philosophy about its direction?
Shaper: KMEP has a very distinct culture of execution, efficiency and increasing asset utilization. We know what we want to do and we are focused on the midstream energy business.
In general, we don’t own the commodities that we transport. We are after earning a fee for moving someone else’s product. We own and operate those assets as efficiently as possible to eliminate unnecessary costs. You know, Rich Kinder works for a salary of $1 per year—no bonus, no other form of compensation. We don’t have airplanes, sports tickets, executive perks. Those things aren’t necessary for the efficient operation of our assets.
And we are always looking for opportunities to expand our assets and acquire additional assets that fit our portfolio. We have an incredible workforce that does a phenomenal job because, in large part, they know exactly what they are trying to do.
MIDSTREAM: What would you say is the biggest challenge for the industry now and during the next few years?
Shaper: Given the events of the past year, safety and prevention of incidents are going to be big issues. The industry will have to deal with the potential for increased regulation. We aren’t expecting anything significant, but we do expect some modification. There are other regulatory issues, some of which are more about economics than safety, when we are talking about rates, so that is something the industry will have to address as well.