Welcome to the Quarterly Earnings Conference Call. At this time, all participants are in a listen-only mode, until the question-and-answer session of today’s conference. [Operator Instructions] I would like to inform all parties that today's conference is being recorded. [Operator Instructions] I will now turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan.

Thank you, Denise and good afternoon. Before we begin, as usual I'd like to remind you that KMI's earnings release today and 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 our full 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. Before turning the call over to Steve and the rest of the team, I'll just make a short statement before -- because we now have actual results for the full year 2020 and have released our preliminary outlook for 2021, this is a good time in my judgment to examine both our current results and future outlook at Kinder Morgan. It seems to me, that the clear takeaway is the strength of the cash flow which allows us in both years to fund our dividend and all discretionary CapEx from internally generated funds and still have significant cash left to pay down debt and buyback shares. This remains at the core of our financial strategy and should be comforting to our shareholder base as it demonstrates our ability to return value to our shareholders even under adverse conditions like we experienced in 2020. I would make two additional important points. Number one, there is a long runway for the products we move through our pipelines, particularly, natural gas. And as the world transitions to a future of lower emissions, my second point is that our assets are well positioned to participate in that transition. We'll discuss all these subjects in detail at our upcoming virtual investor conference on January 27 and I look forward to your participation. Steve?

Thanks, Rich. So I'll give you a brief look back on what we accomplished in 2020, a look ahead on 2021 and beyond which as Rich said we'll cover in greater detail at our annual Investor Day next week. Then I'll turn it over to our President, Kim Dang to cover the business updates. Our CFO, David Michels as usual will take you through the financials and then we'll take your questions. 2020 has shown us how important it is to have our priorities and principles straight. We kept our focus throughout the year on keeping our coworkers safe and on keeping our essential assets running for the people, businesses and communities that depend on us. Like everyone in our sector, we didn't shut down. We kept running adjusting our operating procedures on the fly to keep people safe, while we helped utilities and factories and other businesses keep running and serving our communities during the pandemic. The pandemic and the downturn in U.S. energy markets impacted us for sure, but we were still able to maintain our financial principles which remain the same. First maintaining a strong balance sheet, we managed to reduce net debt by almost another $1 billion taking our overall net debt reduction over the last five years to well over $10 billion -- $10.8 billion since Q1 of 2015 and achieving and maintaining our BBB flat credit rating. Second, we maintained our capital discipline through our return criteria a good track record of execution and by self-funding our investments. On that front we evaluated all of our 2020 expansion capital projects and have reduced CapEx by about $700 million from our 2020 budget for about 30% in response to the changing conditions in our markets, while still completing our largest project the Permian Highway Pipeline…

Okay. Thanks, Steve. I'm going to go through our business units today. First, starting with natural gas. Transport volumes were down 2%, or approximately 600,000 dekatherms per day versus the fourth quarter of 2019. That was driven primarily by declines in Rockies' production and increases in transportation alternatives out of the Permian Basin. These declines were partially offset by higher volume, driven by increased demand for LNG exports and industrial customers. Our physical deliveries to LNG facilities off of our pipes averaged almost 5 million dekatherms per day. That's a 50% increase versus the fourth quarter 2019. That's a big increase versus the third quarter of this year, and it's above Q1 2020, which was largely unaffected by the pandemic. For 2020, Kinder Morgan pipes moved well over 40% of the volumes to LNG export facilities. Exports to Mexico were up about 4%, when you compare it to the fourth quarter of 2019. For 2020, our share of Mexico deliveries ran over 55%. Overall, deliveries to power plants were down about 2%. Our natural gas gathering volumes were down about 20% in the quarter compared to the fourth quarter of 2019. For gathering volumes, I think, the more informative comparison is versus the immediately prior quarter, so the third quarter of 2020. When compared to the third quarter of 2020, volumes were down about 3%. KinderHawk, which serves the Haynesville was down due to lack of drilling and declines in existing wells. However, we're still expecting based on our conversations with producers to see new drilling in that basin this year. Eagle Ford volumes were also down. The bright spot again this quarter was our Highland system in the Bakken. Volumes there were up well over 20% versus the third quarter of this year. On the project side, as Steve…

All right. Thank you, Kim. So for the fourth quarter of 2020, we're declaring a dividend of $0.2625 per share or $1.05 annualized, which is flat with last quarter and 5% up from the fourth quarter of 2019. Moving on to the fourth quarter 2020 performance versus the fourth quarter 2019. In the fourth quarter of 2019, there were a few items that were categorized as certain items: The certain items captured in gain/loss on divestitures and impairments; earnings loss from equity investments and higher income expenses all nearly offset within the fourth quarter of 2019. That leaves us with $237 million of lower revenues in the fourth quarter of 2020 versus the fourth quarter of 2019 offset by lower O&M expenses, lower depreciation expense and lower interest expense, which explains why net income attributable to KMI of $607 million is about flat with Q4 2019. Our adjusted earnings of $604 million is 3% -- is about flat with Q4 2019. And our adjusted earnings per share of $0.27 for the quarter was up $0.01 from the prior year. Moving on to DCF. Natural gas was down $59 million for the quarter. Lower contributions were driven by the sale of our Cochin pipeline, along with lower contributions from multiple gathering and processing assets. And those were partially offset by greater contributions from our Texas Intrastate systems as well as expansion project contributions. The products segment was down $64 million driven by lower refined product volumes and lower crude and condensate volumes driven mainly due to the continued demand impacts from the pandemic. The terminal segment was down $32 million, which was driven by the sale of KML, lower refined products and lower contributions from our Jones Act vessels. Contributions from expansion projects placed in service partially offset those items. Our…

Okay. So Denise, we'll open it up for questions now. [Operator Instructions] So let's open it up, Denise.

Thank you. [Operator Instructions] Our first question does come from Jeremy Tonet with JPMorgan. Your line is open.

Hey, Jeremy.

Hi. Good morning. Hi, good afternoon. Thanks for taking my question here. Just want to start off with a high-level question here. And you've laid out some pieces for kind of dividend growth expectations. But just wondering capital allocation philosophy overall, if you could refresh us on how you're thinking about that, when it comes to dividend increases versus buybacks? And also it seems like the market's continually looking for lower leverage here so that the multiple can be attributed more to the equity side than the debt side. So just wondering how those different things work together. And the industry still seems ripe for consolidation so wondering if you could refresh us on that?

Okay. Yes sure. I mean as I think we covered here we've done a lot of work on the balance sheet, have ourselves in what we believe is a very good position with the BBB flat rating with all the net debt reduction that we've done over the years including this year. And we feel like we're in a very good place there. And as we've examined that and applying additional debt reduction to achieve an upgrade or whatever we don't really see much of a cost of capital benefit for our equity investors resulting from that. So we do think we're in a very good place there. And so that gives us the opportunity to then think about expansion capital projects. We exhaust a good returning -- high returning nice margin above our weighted average cost of capital on those returns. Those opportunities are less than they were in years past. And so we're funding the ones that make sense to fund. And that leaves us with a substantial amount of cash available after that. And so we've increased the dividend from $1 to $1.05 and now $1.08 expectation for 2021 and leaving room for as much as $450 million in share repurchases. So I think we've done the right things by the balance sheet. We're funding the things that add the value to the firm in terms of additional projects where those make sense. We're not stretching that. If they don't make sense we're not doing them. And then we don't sit on the cash that we have. We look for ways to return that to our shareholders. And as you know I mean the valuation between those 2 dividend versus share buybacks the dividend, there's a good reliable return of value to shareholders in that. There's not as much flexibility on it. So we've opted to have some flexibility to do share buybacks. And that's how we've laid it out. In terms of the consolidation opportunities our answer is pretty much the same there. We continue to look at those opportunities. The industry has been ripe for consolidation for years, one might say. Not sure what the catalyzing event turns out to be there, but it's something that we look at and evaluate. It's got to meet a number of criteria. It has to deliver real value to our investors of course, has to be in businesses that we're confident that we can run safely, reliably and efficiently of course. It has to be accretive and it also can't mess up our balance sheet which as we've looked at it, we've got to at least be leverage-neutral and if anything maybe leverage-accretive. And so our discipline there continues to be very robust.

Got it, very helpful. And then maybe just one last one on ESG side, if I could. Just wondering in your conversations with the ESG raters with ESG investors do you think they see the role for natural gas and energy transition the same way that you guys have outlined it here? Do they buy into that? And do you guys have internal views I guess on Scope three emissions how natural gas compares to renewables? And when you have these conversations with those stakeholders do they see things similar to you guys?

Yes. So I will -- there's a lot of diversity as you know Jeremy and how people are evaluating this. I think the ratings show that we are doing an effective job of communicating our ESG measures and managing our ESG risk. Our rating is based on how we're managing ESG risk. It's not based on having a really great ESG report. It's about how we manage that risk. I think a lot of people recognized the need for natural gas and the value that natural gas has brought to the environment over the years. If you look back in 2017, we were 6 gigatons of annual emissions, CO2 equivalent emissions. We're now down to 5.1. And a big part of that -- and in an economy that's grown over that period a big part of that has been the role that natural gas has played in power generation. And so, yes there are people who recognize the role of natural gas and also how we're doing with our ESG risk management. And we are in ESG funds as a result of that. Now that's not a universally held view, but it is something that we're proud of and that we continue to elaborate on with investors and continue to respond to questions and concerns as they are raised by the investment community. You make a very good -- or you asked a very good question about Scope three emissions. One of the real advantages and it's an extremely stubborn advantage of hydrocarbons is that it's a very energy-dense form of energy. And so that means that with a relatively small footprint and a relatively small amount of capital, you can get an awful lot of energy for -- from the power plant for example a natural gas power plant. And it takes acres and acres and acres of solar panels and windmills to make that up. And because of the lack of energy density, an awful lot of manufacturing: A lot of mining, a lot of manufacturing, a lot of disposal costs associated with building that up. And so, once we get to a point a point that we're not at just yet, but once we get to a point, I think, where the public discourse around ESG expands to include those measurements on renewables, it brings natural gas much closer in terms of environmental impact. Look, we work with renewable companies. We work with utilities who are increasing their renewable portfolios. We believe that our business plays an important enabling role there, but there is a lot more to I would say the natural gas story once you take everything into account.

That's very helpful. I’ll stop there. Thank you.

Thank you. And the next question comes from Shneur Gershuni from UBS. Your line is open.

Happy New Year everyone. Good to hear you all or see to you all. I guess, two to start off. I was wondering if we can sort of talk about sort of the trends that you're seeing specifically for volume trends, I guess, in refined products and so forth were pretty decent when you consider the fact that COVID cases were going up. 2021 has kind of started off well and so forth. When I think about the expectations that you laid out in December, how do you -- how would you say that Kinder Morgan is tracking thus far? And I recognize it's early and you'll provide more depth on the guidance inputs next week. But just curious about sort of the trends at the end of December with early January, how are you tracking thus far? Is it kind of in line with what you expected or cautiously optimistic? Just any commentary around that would be helpful.

Okay. Kim, do you want to start on that?

Yes. Hi, Shneur. I think we'll go through all the assumptions next week. I noted that the volumes in January are down 13% versus January of 2020. I think that's a slightly weaker than what we planned. Our hope is that once you get the vaccine distributed that some of those volumes will come back. When you look at how much volumes are off comparing one month versus the month in the prior year you go back to October and November, we were down like. I think in October it was like 11% maybe. And so hopefully, once we get the vaccine distributed more widely, we'll see some improvement in those numbers, but slightly weaker than what we budgeted but very early. On the other hand, I'd say, on the other hand, there are some green shoots. On CO2 with the stronger oil prices, there's a little bit of upside on price, if those prices were to hold. Volumes that -- SACROC have been pretty strong and stable over the last couple of months. We've seen a small amount of incremental CO2 sales volumes versus what we're expecting. So, there are a number of puts and takes there and we can go through those actually.

Fair enough. I appreciate that. And maybe as a follow-up, I was just wondering if you'd return back to the buyback question. You've highlighted $450 million of opportunistic buyback capacity and so I would kind of, I guess, a two-part question here. Should we as we sort of think about the word opportunistic should we be thinking about a washing for quicker return of volumes as that's what creates the opportunity versus the actual stock price? And then secondly when we sort of think about that capacity it sort of translates into roughly 50% of your free cash flow after dividends. Is that kind of the expectation how you're thinking about being half goes to debt pay down and half goes to buybacks if there's an opportunistic opportunity?

Yes. So I'll start and then ask David if you want to elaborate at all. So opportunistic is kind of purposely open, right? We're not talking about a specific target price or particular interim targets. We have principles that we are adhering to which is that we want to maintain a strong balance sheet. And so that's always a consideration. And we want to procure the shares on what we believe is an attractive return. But beyond that we're not saying much more than opportunistic, meaning, we're not programmatic and we're not specifying a target for the market out there. But we've got the capacity. And I'll just say, it's good to be in a position to have this capacity in light of all the work that has been done on the balance sheet. We'll do it opportunistically and based on return expectations. And again, not publishing a target. David anything, I missed there?

Just to follow-up on Shneur's other piece there about -- I hear you had said about half of our available cash. If you take DCF after capital after dividends, it's now $1.2 billion. So the $450 million, the little bit less than half, so $750 million of that is kind of dedicated to the balance sheet. And so we are being pretty thoughtful about allocating the cash flow that we're generating in the year to the balance sheet. And then as Steve covered, we'll be opportunistic on the buybacks.

Perfect. Thank you very much guys. Really appreciate the color. Looking forward to join next week at the virtual Investor Day.

Thank you.

Thank you. And the next question comes from Spiro Dounis your line -- from Credit Suisse. Your line is open.

Hey, afternoon everyone and Happy New Year. Just wanted to follow-up on Shneur's first question. Just looking at the macro outlook and the improvement since you all guided to in December. And so I'm just curious if producers have changed their tone or their attitude on growth at all since that time? I know Kim you mentioned ongoing discussions in the Haynesville. Curious if you're seeing positive momentum elsewhere since December? And then maybe how you think about the direction of CapEx next year if we do see increased activity?

Kim?

Sure. I think it's different based on the basin. And so in the Bakken we've seen the year get off to a good start. I think we finished the fourth quarter a little bit better than we were thinking. The year is off to a good start. The Eagle Ford has still been weak. If you look at the Permian the rig count there that's where most of the rigs have been added since we came off the lows in August. And by our calculations you're getting close to a rig level in the Permian that could get you back to flat volumes to where we were pre-pandemic. That won't happen immediately. That will take time to get there. And so I think with respect to producers and their guidance, I'd say a couple of things one I think they have to feel like that -- based on our conversations they need to feel like that these the prices especially on the crude side are going to stay strong for a long period of time. And right now you've got the Saudis and others holding a lot of barrels off the market. And so that creates price uncertainty. I also think the producers are very focused on free cash flow. And so it's not clear how much they would ramp up CapEx in response to increasing prices. So, I think a lot more to come there as we get into the year.

Okay. Fair enough. Second question on ESG. Steve, I appreciate your comments there and laying out some of those new items and initiatives. I just want to focus specifically on the ones that would require a bit of a step out on your part that a much maybe higher return hurdle line if they're there. Just wondering on the ESG strategy do you contemplate M&A being a part of that specifically, or do you feel like you have enough of the internal core competencies to execute that organically? And then just quickly related to this in terms of timing how should we be thinking about the timing of when those initiatives start to materialize and actually start to really show up in the CapEx budget?

Okay. Yes. So, I distinguish between several different kinds of opportunities. When you think about responsibly sourced natural gas, it's something we're out there marketing today. When you think about blending hydrogen in to the extent that that becomes available or moving renewable natural gas which is something that we already do today the quantities are very small. But when it comes to originating and doing that kind of business we're already very well fixed to do that within our existing business units. That extends also to things like additional renewable liquid fuels like renewable diesel where both in our products group and in our terminals group we are actively looking at and pursuing opportunities there today. And it's in businesses that we understand that we know how to do and that we can help our customers get where they're going. When it comes to the further step outs, I think our approach is going to be again very conservative. We're going to look at the things that are adjacent to us that we think makes sense for us to do. And we think that we can do that with folks in our organization and with us taking and continuing to take a hard look at some of those opportunities, wouldn't rule out M&A. But I think that's an area where you can move to more quickly than is prudent. And we're going to be prudent in how we approach it. And so I think it's more organic, but M&A or acquisitions wouldn't be off the table for the right opportunity. But I'm purposefully emphasizing organic using the tools the assets the people and the opportunities that we have.

Okay. Thanks for the time guys. Appreciate it.

Thank you. And your next question is from Jean Ann Salisbury with Bernstein. Your line is open.

Hey everyone. I wanted to ask about Hiland being up 20% versus third quarter. I think that's quite a bit more than overall Bakken gas was up quarter-on-quarter, but maybe you were down more on year-on-year. Do you have a sense if it was your specific acreage that really moved up? And can you maybe just give a sense so I can calibrate of where Hiland volumes were in fourth quarter versus say first quarter before COVID?

Sure thing. Tom Martin you want to address that? Tom, are you there or are you muted?

Line has disconnected.

Okay. He's showing disconnected? Okay. Yes. So, we did have a nice uplift in gas volumes on Hiland. So, the story on Hiland as you look through the year there was a significant downturn in the second quarter as we had and this was all talked about publicly. But we had a significant producer there go through a large amount of shut-in on their particular acreage. And then, when things came back they came back nicely. And some of that from shut in some of it from flush production. And those volumes have continued to be strong. But there's no question that some of that was aided by the turnaround in what our producer was doing up there one of our large producers. Kim, anything else to add?

Yeah. And I mean, you're not quite back to first quarter 2020 volumes in the fourth quarter of 2020.

Sure. But you would say that, your market share is so to speak is similar to where it was before?

I don't have a specific…

Yeah, I don't know on the market share how our producers performed relative to how they brought back volumes relative to others.

Yeah. Okay.

And I will say, I mean, we've – as we've looked at our producer activity or stated producer activity, where we are now what we're expecting versus what's being reported for Bakken production, it does seem that we and our customers are doing better than just the overall reported numbers for Bakken.

Got it. Okay. Great. I think that's kind of what I was after. And then as a follow-up, you mentioned, weakness in the quarter in Jones Act tankers. Can you expand on that a bit? I believe during the second quarter Jones Act tanker rates went-up quite a bit and then have come back down. But what's the customer appetite for re-contracting today in that market?

Yeah. And I'll call on John Schlosser to add a little more detail. But what I'll tell you is that we – John and the team were really nicely positioned for what you were just talking about meaning that, we were going to have vessels rolling off charter right as charter rates were improving, which is where things were headed based on the overall supply and demand fundamentals there. And then the pandemic happened. And so, as you saw in other refined products, volumes and demand for refined products movements, we saw that – we saw that come off and come off relatively hard. And so that created kind of an unexpected pivot in the overall picture. Now over the longer term, there aren't new Jones Act vessels that would compete with our MRs anyway that are being built right now. We think that that market does come back into balance over time. But it has created some short-term weakness in demand. Beginning to see some nice uptick in inquiries, and calls for quotes, as we've gotten into 2021, but we did take a reduction there. Now I would say, overall Jones Act vessels are running probably – again this is a pandemic number, Jean Ann so not representative of call it normal refined products operations, but call it 25% off higher. We're about half of that meaning about 12.5%. So better, but we have some expirations coming up over the course of 2021. So, what will really drive this business is, post pandemic recovery in refined products movements. John?

You're correct. The 25% number is for the entire industry. So, we're seeing about 25% of the total tanker volume out. We had maneuvered our way very well through the year and had it – boarded that. For the year, we're up $2.3 million, but we did see an impact on two of our vessels, the Lone Star and the Pelican in Q4, which amounted to a negative impact between that and some price compression of about $6.7 million negative in Q4. But we are seeing some green shoots. We're seeing more inquiries here over the last couple of weeks. And we believe that that 25% is overblown and should come back as the year goes on.

Thank you very much.

The next question comes from Colton Bean with Tudor, Pickering, Holt & Company. Your line is open.

Good afternoon. So, I think historically, the team has highlighted that you would not expect to pay corporate cash taxes until sometime after 2026. Can you just update us on current thinking given the lower capital spend? And if you have any preliminary thoughts on how that might change in the event that we see a corporate tax increase? I would appreciate those thoughts as well.

Yeah. That's still good guidance. And it doesn't really change with a corporate tax increase, because what we're describing there is NOLs which for that period that we've talked about, which is beyond 2026 more than offsetting taxable income. So, it's less driven by – not driven by the rate. David, anything you want to add there?

No. You covered it, Steve.

Okay. And so, with the lower capital spend still no change there?

That's right. No change to that guidance.

Got it. Okay. And then with Permian Highway now online and Waha pricing much closer to Gulf Coast hubs, can you frame for us the impacts on the interruptible portion of the intrastate business there?

The interruptible -- say a little bit more.

So, thinking the non-contracted portion of the intrastate. So to the extent that you are moving just on a fee-for-service maybe a month-to-month evergreen contract, or you are moving actual basis spreads and take advantage of a bit of marketing opportunity. Just trying to understand, how we should think about that portion of the business now with where Waha is pricing?

Okay. Yeah. So, let me try this. We were moving kind of interim service -- this may not be what you're getting at. We are moving on interim service on PHP as we were commissioning compressor stations and the like. So, we were delivering November and December delivering volumes on PHP until we got it fully commissioned and put it in service and took nominations under the long-term firm contracts. It's fully underpinned by long-term firm contracts starting on January 1. Now, we're also buying and selling gas. You made mention of interruptible. I think I know what you mean there. I mean it is technically interruptible. A lot of that -- those -- that business is interruptible, but it's generally not interrupted. But we are buying and selling and optimizing on our Texas Intrastate network, some of which -- this is a unique element of the Texas market, some of which of course like the interstate market is on long-term transportation arrangements, including sometimes transportation arrangements that are PHP shippers, for example, hold downstream in order to get to an ultimate delivery point. And then other transportation arrangements that we make with producers and with end users to connect production to power plants, industrial facilities, utilities et cetera. And so, what I would point to there is we now have an additional two BCF a day, hitting our system a little less than that. It's not quite running 100% full. We got two BCF a day coming from a couple of years ago when we brought GCX in service another two BCF coming from Whistler. What that is going to mean for us I think ultimately is a great amount of natural gas that we provide a lot of the last mile connectivity to on our system in Texas. So generally I think that's a bullish development. You're right. The Waha spread has come in as that fully contracted pipeline system is up and running. And I think it will take a while even with the development that Kim described of additional rigs coming back out there. I think it was 2022 prices were up fairly significantly from what we're currently seeing in 2021. Eventually, we'd expect that system to fill back up basis to widen back out and call it the middle of the decade we would need some additional incremental transportation capacity. But overall, the new facility coming in is under contract. What it does is bring a lot more to natural gas to our system, which is a good thing for our existing business on that system. Did I answer your question?

And I think Colton also was asking about, do we have significant business that is subject to that spread, and therefore, because that spread came in we're going to take a hit in EBITDA? And generally, Colton, the way that we contract is we're contracting on a back-to-back basis. And so, we are not generally taking spread risk. And so, the impact of that spread coming in is not going to have a material effect on us.

Good point.

Understood. That’s helpful.

And are you ready for the next question?

Yes.

Thank you. That comes from Tristan Richardson with Truist. Your line is open.

Hi, good afternoon guys. Kim, I appreciate your comments on what you're seeing in January across products. Curious of the fourth quarter commentary around diesel growth year-over-year. Can you talk about that strength either regionally or what you're seeing on the demand recovery side with respect to diesel?

I mean, we think that that is largely driven by all the shipments that are moving as people are ordering things online and having things shipped to their homes. And so we think it's -- because when you compare it to gasoline volumes, gasoline volumes are down. We did see -- we've seen that same phenomenon for a couple of quarters now. And so that's what we would attribute it to, 18-wheelers moving down the highway, hauling goods to various facilities and homes.

Great. Yes, I was just trying to make sure there wasn't some specific item or one specific region. That's helpful. And then a quick follow-up just on the Hiland on the crude side. Can you talk about generally just conversations with customers around capacity availability for egress either working with you guys around making contingency plans in the event the basin sees disruption of the major pipeline there or taking on additional contracts with Kinder Morgan, et cetera?

Dax you want to comment on that?

Yeah, yeah. I think overall they're positive and the volume trends we're seeing are positive. We were fourth quarter on Double H. We were about 64 day out of total capacity of about 88. Right now for January, we're looking to be pretty close to the full level. So conversations, I mean, look we have absolutely no idea of what's going to happen with that one and certainly wouldn't speculate on that. But the conversations overall were constructive and we're seeing it in volumes.

Thank you, guys very much.

Thank you. And the next question comes from Michael Blum with Wells Fargo. Your line is open.

Thanks. Good afternoon, everyone. I wanted to go back to the Permian natural gas market. You guys commented that El Paso natural gas saw a reduction in volumes. I just wanted to understand that a little better. Is that a result of PHP coming on, or is there weakening demand in California? I just wanted to better understand the dynamics there.

Yes. And so Tom Martin got kicked off the call before the earlier question and he's back on. And so I'm going to ask him to respond. Tom?

Yes. I think the answer to that question is it's a combination of both really just weaker demand in California as well as increased outlets for Permian supply locally if you will had some impact on our volumes on EPNG. Again, I think, once – I think much of that was seasonal related out West. So assuming we get good demand in 2021 out in California we think that likely recovers a bit.

Okay. Great. And just a follow-up on that point. Would you say that that's a long-term secular trend in terms of declining demand into California, or do you think it's going to just remain seasonal and weather-dependent?

Well I think how we serve California is changing obviously with the renewable growth there. So volumes long term may not be as strong especially to Northern California. But I think the amount of capacity need into that market probably actually grows over time as more renewable penetration increases in that area.

Great. Thank you very much.

And the next question comes from Pearce Hammond with Simmons Energy. Your line is open.

Thank you for taking my question. Just one question today for me. Steve in your prepared remarks you mentioned carbon capture as a potential business opportunity for Kinder Morgan. And it sounded like in your prepared remarks that the economics for carbon capture are not favorable at this time. So I was just curious what it would take to make this a more attractive business for Kinder Morgan. And the reason I ask is Kinder has a real expertise in CO2 and this seems like a natural outgrowth of your business and something that you would have a competitive advantage in. So I'd love to just get your overall thoughts on that carbon capture opportunity.

Yes sure. There's quite a hierarchy there. And so, if the recently published regulations on 45Q do make certain parts of the carbon capture opportunity, more economic win used in combination with enhanced oil recovery. And so the allowance, the tax credit allowance for EOR at the rate now approved makes things like gas processing, ethanol facilities more economic and may be economic. And that's an opportunity for us. There's nothing specific right now or deal-specific to talk about there. But it's gotten a lot closer and may actually be economic. And so as we look at it from our business standpoint from our business perspective, we do have in our treating business today, which is just standard, long existing aiming technology to separate CO2 from – whether it's a gas stream or a process facility separated it then also has to be captured. And the purer the stream the better, right? So it's purer in things like processing facilities and ethanol facilities. It's got to be captured. It's got to be powered up. It's got to be transported, which is where we come in. And it's got to be put in the ground and stay there which is also where we come in. And better still you get oil from it and that helps make the whole thing work. And so we're beginning to see some of those applications creep into economic territory. And then marching up from there to things like capturing it from power plants and from other industrial uses that gets more expensive and then direct air capture is extremely expensive given the very low concentration. So CO2 in the atmosphere about 0.04% versus from a flue stream run from between 3% and 20%. So 75 to hundreds of times more economic from the flue stream. So we're just kind of on the edges of that now starting to see some things that are getting interesting. Jesse any that – anything you want to add?

I think you've covered it Steve. Thanks.

Okay.

Thank you, Steve. Appreciate it.

Thank you. And the next question comes from Ujjwal Pradhan with Bank of America. Your line is open.

Good afternoon. Thanks for taking my question. I just wanted to first follow up on the Permian gas. Do you believe item will likely be more takeaway in Permian next year after the Whistler and some other smaller projects come online? I wanted to follow up on where the discussions on adding third gas pipe in the Permian stand the Permian pass. And what is the competitive environment like for that?

Okay. I'll start and then Tom, you fill in. It's not anytime soon, right? I mean it's not this year. It's not next year. When we look at it both third-party analyses, as well as our own internal house model of it, we see the need beginning to emerge in call it 2025 and people will generally try to get in front of that, given the amount of time that it takes even in Texas to get pipelines built. And so we'd expect to be talking to people ahead of that in order to be able to get something in service by call it the middle of this decade. We think that we -- the advantage that we bring there are severalfold. One is that, we've got a great I think the best Texas Gulf Coast pipeline network. We've got to get the supply to market and increasingly that means getting it to LNG markets Mexico getting it to the export markets, but also finding end uses in the growing petrochemical and industrial market along the Texas Gulf Coast. So we get people there and then we've shown that in far more difficult circumstances than what we would anticipate for a Permian pass, we've been able to get projects done. So, we think we're in a good position. That's not a guarantee of course. But we think it's a ways off. It's not that we're not having any conversations with people. There are some very long-term planners out there as you know in the producer community. And so we continue to talk about it. But it's a ways off. Tom?

Yes, really nothing more to add there. I think, just the trajectory of growth and the rig activity in the Permian will tell us a lot over the coming months and a couple of years.

Got it. Thank you. And just switching gears, my follow-up is regarding U.S. Army Corps' recent decision to move forward with splitting the Nationwide Permit 12 into two separate permits one specifically for oil and gas pipelines. Steve, how do you think this changes the regulatory picture from new pipeline projects from KMI's perspective?

Yes. So Nationwide 12 as you know is what we've relied on to do PHP. And it's a long-standing process. It's been in place for decades. It gets refreshed every five years. And you're right, there's some examination of splitting it meaning oil and gas would be treated differently from other linear infrastructure that's typically used under Nationwide Rule 12. And what I would say, the impact of that is likely to be -- if it happens is that, it takes us more time and more effort to accomplish what we could have accomplished more quickly, but it doesn't prohibit it. So for example that's the permitting structure that allowed us to cross certain waterways with our construction activity. And that might become more individualized examinations of those crossings rather than having them grouped under a single permit umbrella which adds time and cost, but it doesn't eliminate our ability to demonstrate that we're making those crossings in an environmentally responsible way, right? So it's losing the advantage of a permitting process where NEPA has been taking care of environmental impact statement et cetera has been taken care of and one fell swoop versus having to do it on an individual project basis. So it adds time. It doesn't eliminate the opportunity.

Got it. That’s helpful. Thank you, Steven.

The next question comes from Michael Lapides with Goldman Sachs. Your line is open.

Yes. Hi guys. Thank you for taking my question. I actually have two and I'll ask them just back-to-back in the interest of time. First, you all did a good job on the income statement in terms of managing cost in 2020 G&A and even probably some other areas as well. Can you talk -- first question is, can you talk a little bit about what the expectation is for 2021? Do you expect some of that cost to come back, or is this now kind of permanent cost reduction? That's point A. Point B is more of a policy one. We're starting to see some states take a bit of policy-driven action regarding the future of demands for their gas-regulated utilities and trying to really restrict cap or limit demand or even shrink demand growth out of gas utilities. Just curious how you're thinking about how that would kind of -- what the impact is on your business going forward, if that kind of plays out. And it's really -- looks like it's more some of the East Coast states and some of the West Coast states that are the ones looking at it.

Okay. All right. Thank you, Michael. On the cost side, no those cost adjustments that we made as part of the organizational efficiency and effectiveness project, I think, it's fair to think of those as permanent. Those are costs we took out of the structure labor costs and other costs that we took out. Every budget is a bottoms-up review and cost requirements change, plus or minus, depending on what the emerging -- whether it's regulatory requirements or maintenance requirements or other things are. But we did some permanent long-lasting work there. So I think that's the right way to think about that. And we'll give you some more detail in the conference. Some of that came through -- about 50-50 sort of split between the segments and between the corporate costs like G&A and the like. On the policy question, yes, it's something that we watch with some concern. It's not something that we are directly involved in, in terms of how states are thinking about their end uses, end users of natural gas. I would point out though, as you say -- as you pointed out, that it is in limited areas where this has become an issue. It's of course prospective, and so dealing with new construction and new homebuilding, et cetera. And that's a long internal growth in that market, as you know. But the other thing is, I think, on closer examination, people are going to be more concerned about it. When you think about developers who like to be showing houses that have natural gas water heaters and furnaces and natural gas ranges and the like, they're not going to like that. That's less about what Kinder Morgan thinks than it is about people who are building things and producing jobs in the states at issue. We've seen in real life restaurant owners react in a very negative way to it. And actually one community pushed back an attempt to eliminate natural gas usage. And we've also seen in another jurisdiction that I won't mention, that a lot of obstacles to getting natural gas infrastructure cited. And then when it became apparent that natural gas wasn't going to be available to end users in the state, a complete about-face in terms of asking the incumbent utilities to figure out a way to get additional natural gas in and not have moratoria in place. And, so I do think that there are many hands still to be played there. And from our perspective, while it is narrow, it's worth watching. And it's also one where I think we benefit and society benefits from giving it much closer examination.

Got it. Thank you, guys. Much appreciated.

The next question is from Timm Schneider with Citi. Your line is open.

Yes. Thank you. I had a follow-up. Two questions that was asked earlier on the whole renewables, the hydrogen, the biodiesel fuels push. Just kind of curious, obviously, look, sounds great when you talk about it, but kind of what inning are we really in here in terms of when you think this could actually meaningfully add to your cash flow? When do you think some of these CapEx expenditures are going to show up? And then what's involved in terms of getting some of these projects from conception through completion?

Okay. That's the ultimate question. And it's -- we're in different innings on different things. On things like responsibly sourced natural gas, we're already there and we're talking to customers about it. And as I've said, some of our LNG customers are very interested in it, because it does matter. If you're a low emissions -- low-methane emissions transportation storage provider, which we are, we met our one future goal seven years ahead of schedule and the allocation to our sector was 0.30%. We're at 0.03%. So, I mean, we've really -- we've got a lot of good things to show our customers in that regard. Serving as a backstop for renewables, our capacity as a backstop, our gas storage has probably the cheapest and most efficacious energy storage versus batteries. We're right there right now. Renewable diesel we're right there right now. The discussions we're having in California were of course the whole market is aided there by a low-carbon fuel standard. Dax would tell you our customers are saying "What can you do for us, today?" We're talking about renewable diesel hubs there that -- where we can build out some capability at good returns and provide a good service to our customers. And they're really in a hurry, to get something there. It's a little bit longer. It's not in a night thing in other parts of the country. But as low carbon fuel standards spread those things are going to be of greater interest. On the other hand, things like hydrogen, hydrogen is promising. It's been the fuel of tomorrow for decades. And it takes a while to -- and it takes I think some subsidies to get it to a point where it's really actionable. It's $19 in MMBtu today. And so will it ultimately…

Okay. And I really appreciate that. Maybe as my follow-up here just briefly, I want to stick to hydrogen. How do you see the hydrogen environment kind of develop for midstream players? Do you think this will really be an opportunity for maybe a set of two or three folks, or is it a broader opportunity set for more? And how is -- where is Kinder Morgan's competitive advantage, in this whole hydrogen value chain?

I'll start with the last. I think our competitive advantage is in the existing network we have and the existing customer relationships that we have. Meaning, we are serving a lot of customers who would be taking blended hydrogen, whether that's on an industrial or a power plant or an LDC for example. We're serving those customers today on the network that we have today. And so that's really our advantage. In terms of how broad the opportunity is likely to be, I would say, looking at it right now, it looks like it will be pretty broad. I mean it doesn't look like to your point there's really a dominant player there. One might emerge, of course, as it could be the case in any business, but there doesn't appear to be one now. Right now, I think it's still in the thousand flowers blooming stage.

Okay. I appreciate it. And I'll be back next week for some more questions, but appreciated it for now.

Thank you.

Thank you. And the next question comes from Shneur Gershuni with UBS. Your line is open.

Hi guys. Just wanted to follow-up on an earlier question about the volume change on EPNG, as I sort of think back to 2018 before things got crazy on the Waha spreads and so forth, if I recall you put in a little bit of capital that are very high-return capital to sort of take care of the challenge at the time of trying to address the spread issues. And so the concept was that when PHP Gulf Coast came into service that those opportunities would go away. Is that kind of what we're seeing now, or is it this seasonal response that was given in response to the question? Just trying to -- I'm trying to understand that this is the temporal earnings that were going away were always expected to go away, but was very profitable at the time.

Okay. Tom Martin?

Yeah. I mean, I think the macro response I gave is probably the bigger picture answer. I think there were clearly some very lucrative opportunities early on. We captured those opportunities by spending a little capital doing some term contracts on those. And clearly as those deals come up for re-contracting they'll be a bit lower. But again we're not talking about material dollars here. I think really the bigger picture answer is the one that matters the most. And it's the macro fundamentals that I described earlier.

Okay. Got it. Thank you very much. I appreciate the colors. Thank you.

And there are currently no further questions.

Thank you very much. Have a good evening.