Kinder Morgan, Inc. (KMI) Q3 2021 Earnings Report, Transcript and Summary

Good afternoon. Thank you for standing by, and welcome to the quarterly earnings conference call. Your lines have been placed on a listen-only mode until the question-and-answer session of today's conference. [Operator Instructions]. Today's conference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. Sir, you may begin.

Thank you, Michelle. Before we begin, I would like to remind you as we always do, that KMI 's earnings release today in this call include forward-looking statements within the meeting 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 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. Now every quarter, I open this call by talking about our financial philosophy at Kinder Morgan. I always mention strong and consistent cash flow and explain how we use that cash flow to play -- to pay a healthy and growing dividend, internally fund our expansion Capex needs, keep our balance sheet strong and opportunistically buyback our shares. I believe our shareholders understand and appreciate the strength of our cash flow even if there are various -- varied positions on what we should do with it. But in a broader sense, if we examine what owning a share of KMI really amounts to, I've come to believe, as the largest shareholder, that we are receiving a very good and growing yield on our investment, while at the same time getting amazing optionality on future developments. Let me explain that optionality. We have entered the energy transition field with what I consider to be solid investments that Steve and the team will discuss further, and our cash flow gives us the ability to pursue those opportunities in size, if and only if the investments achieve a satisfactory return. And I believe that if we so desire, we will be able to attract new partners at a time of our choosing, whether it's public or private, to participate in those opportunities with us on terms favorable to KMI. I also firmly believe that there is still a long runway for fossil fuels around the world, particularly for natural gas. If you read carefully the latest studies from the IEA, OPEC, and for various other energy experts, you will see projections that fossil fuels will continue to supply the majority of our energy needs for at least the next quarter century and that natural gas will be at the forefront of fulfilling those needs. If these projections are anywhere close to accurate, a company like Kinder Morgan with significant free cash flow will find significant opportunities to invest in this core business, where we have substantial expertise and a huge network that can be expanded and extended. So, this is another option that you receive as a KMI shareholder. I would add that the events of this fall throughout Europe, Asia, and North America demonstrate that the transition to renewables is going to be a lot longer and more difficult than many of its proponents originally thought. In short, while the world makes the transition, the lights need to stay on, homes need to be heated, and our industrial production needs to be sustained. Finally, we always have the option of returning dollars to our shareholders through selective stock repurchases in addition to the healthy return we're providing through our dividend. This is why I say that an investment in KMI provides you with a nice locked-in return with this dividend and then provides really good optionality for the future. And with that, I'll turn it over to Steve.

All right. Thanks, Rich. I'll give you an overview of our business and the current environment for our sector as we see it, then our President, Kim Dang, will cover the outlook and segment updates. Our CFO, David Michels, will take you through the financials and then we'll take your questions. Our financial principles remain the same. First, maintaining a strong balance sheet. A strong balance sheet helps us withstand setbacks and enables us to take advantage of opportunities. Over the last two years, we've seen both sides of that coin coming into 2020. We were better than our leverage target, and that helped us when we were hit with the pandemic-related downturn. Then this year, we saw the other side, where our extra capacity created as a result of our outperformance in the first quarter, gave us the ability to take advantage of two acquisition opportunities. We see both of those acquisitions is adding value in the firm. Second, we are maintaining our capital discipline through our elevated return criteria, a good track record of execution and by self-funding our investments. We are also maintaining our cost discipline. We have always been lean, but last year at this time, we were completing an evaluation of how we were organized and how we could work even more efficiently. We implemented changes resulting in an estimated full-year run rate efficiencies of about $100 million a year. In that effort, we were aiming for something beyond efficiency, greater effectiveness, and we can see that coming through in the functions we centralized under the leadership of our Chief Operating Officer, James Holland. We are already seeing the benefits in project management and other functions. Finally, we're returning value to shareholders with the year-over-year dividend increase to a $1.08 annualized, providing an increase, but well covered dividend. Strong balance sheet, capital and cost discipline, returning value to shareholders, those are the principles we operate by and we have done so regardless of what is in fashion at the moment. We have accomplished some important work so far in 2021, which I believe will lead to long-term distinction. First, we're having a record year financially attributable to our outperformance in the first quarter. We've continued to execute well on our projects with our two interstate gas group projects coming in ahead of schedule, as noted in the press release, and we have continued to find new opportunities with a small net increase in our backlog this quarter. Second, we completed the two important acquisitions, the larger ones, Stagecoach, showing our confidence in the long-term value of our natural gas business and taking our total operated storage capacity to 700 BCF. We believe in the long-term value of flexibility and deliverability in the gas business that was demonstrated last winter, and we're seeing it with the recent tightening in the natural gas markets here and abroad and in our rates on storage renewals. Third, we've continued to advance the ball on the ongoing evolution and energy markets and in our ESG performance. As things stand today, 69% of our backlog is in support of low-carbon infrastructure. That includes natural gas, of course. But it also includes $250 million of organic projects supporting renewable diesel in our products and terminals business units, and our renewable natural gas projects. Repurposing and building assets at our current terminal locations to support the energy sources of the future. Importantly, too, that 69% is projected to come in at a weighted average 3.6 times EBITDA multiple of the expansion capital spend. So, we're getting attractive returns on these investments. Further, our gas team has now concluded three responsibly sourced gas transactions. Those are low emissions along the chain from the producer through our transmission and storage business. We will soon be publishing our ESG report, including both Scope 1 and Scope 2 emissions. We have incorporated ESG reporting and risk management into our existing management processes and the report will explain how. In the meantime, Sustainalytics has us ranked number one in our sector for how we manage ESG risk and two other ratings services have us in the top ten. This is increasingly a point of distinction with our investors, our regulators, and our customers. With all of this, our projects, these commercial transactions at our ESG reporting and risk management, we continue to advance the ball on ESG and the evolution and energy markets without sacrificing returns. We continue to focus on the G governance in ESG as well. These things are all important to our long-term success, and we have advanced the ball significantly on all three in 2021. We believe the winners in our sector will have strong balance sheets, low-cost operations that are safe and environmentally sound, and the ability to get things done in difficult circumstances. As always, we will evolve to meet the challenges and opportunities. And with that, I'll turn it over to Kim.

Okay. Thanks, Steve. And so, I'm going to start with the natural gas business unit for the quarter. Transport volumes were up about 3%, approximately 1.1 million dekatherms per day versus the third quarter of 2020, and that was driven primarily by increased LNG deliveries and the PHP and service. And then it was -- some of those increases were somewhat offset by declines on our West pipes due to the declining Rockies production, pipeline outages, and contract explorations. Physical deliveries to LNG facilities off of our pipelines average 5.1 million dekatherms per day. That's a 3.3 million dekatherm per day increase versus the third quarter of 2020 when there were a lot of canceled cargoes. Our market share of deliveries to LNG facilities was approximately 50%. Exports to Mexico were down in the quarter when compared to the second quarter of '20, as a result of a new third-party pipeline capacity added during the quarter. Overall, deliveries to power plants were down as you might expect, with the higher natural gas prices. Our natural gas gathering volumes were down about 4% in the quarter compared to the third quarter of '20. But for gathering volumes, I think the more informative comparison is the sequential quarter. So, compared to the second quarter of this year, volumes were up 5% with nice increases in the Eagle Ford and the Haynesville volumes, which were up 12% and 8% respectively. In our Products Pipeline segment, refined product volumes were up 12% for the quarter versus the third quarter of 2020. And compared to the pre-pandemic levels which we use the third quarter of 2019 as a reference point. World fuels were down about 3%, and jet fuel was down about 21%. You might remember that in the second quarter, road fuels were basically flat versus the pre-pandemic number. So, we did see some impact of the Delta Variant during the quarter. Crude and condensate volumes were down about 7% in the quarter versus the third quarter of 2020. And sequentially, they were down about 4%. In our Terminals business segment, our liquids utilization presented remains high at 94%, if you exclude tanks out of service for required inspections, utilization is approximately 97% our Iraq business, which serves consumer domestic demand, are up nicely versus the third quarter of 20, but they are down about 5% versus pre-pandemic levels. Now if you exclude some loss business and Iraq closure, so trying to get volumes on an apples-to-apples basis, volumes on our rack terminal slightly exceeded pre-pandemic levels. Our hub facilities in Houston and New York, which are more driven by refinery runs, international trade and blending dynamics have shown less recovery that are rack terminals versus the pre -pandemic levels. In our marine tanker business, we continue to experience weakness, however, we've recently seen increased customer interest. On the bulk side, volumes were up 19%. Very nicely driven by coal, steel, and Petco. Bulk volumes overall are still down about 3% versus 2019 on an apples-to-apples comparison. But if you just look at coal, steel and Petco on a combined basis, they're essentially flat to pre -pandemic levels. In our CO2 segment, crude volumes were down about 6%. CO2 volumes were down about 5%, but NGL volumes were up 7%. On price, we didn't see a benefit from the increase in crude price due to the hedges we put in place in prior periods when crude prices were lower. We do however, expect to benefit from higher crude prices in future periods on our unhedged barrels, and as we lay on additional hedges in the current price environment. We did see NGL price benefit in the quarter as we tend to have less of these volumes. Compared to our budget, we're currently anticipating that both oil volumes and CO2 volumes will exceed budget, as well as oil NCL and CO2 prices. Better oil production is primarily driven by reduced decline in the base production and better project performance at SACROC. So overall, we're seeing increased natural gas transport volumes primarily from LNG exports, seeing increased gas gathering volumes in the Eagle Ford and the Haynesville on a sequential basis. Product volumes are recovering versus 2020. However, road fuels were down about 3% versus pre -pandemic levels versus flat with pre -pandemic levels last quarter, as we less likely saw an impact from the Delta variant. Versus our budget, CO2, crude oil production is outperforming and we're getting some nice howl on price. We're still experiencing weakness in our Jones Act tankers and the bulk and it's been a little slower than we anticipated in bringing on new wells. But our producer customers have indicated that they're -- that they'll continue bringing on new production, with some wells being pushed into 2020. With that, I will turn it over to David.

Okay. Thanks, Kim. So, for the third quarter of 2021, we're declaring a dividend of $0.27 per share, which is a $1.08 annualized and 3% up from the third quarter of last year. This quarter we generated revenues of 3.8 billion up 905 million from the third quarter of 2020. We had an associated increase in cost of sales with an increase there of 904 million, both of those increases driven by higher commodity prices versus last year. Our net income for the quarter was 495 million, up 9% from the third quarter of '20, and our adjusted earnings per share was $0.22 up $0.01 from last year. Moving onto our segment in distributable cash flow performance. Our natural gas segment was up $8 million for the quarter. Incremental contributions from Stagecoach and PHP were partially offset by lower contributions from FEP where we've had contract explorations and lower usage and park and loan activity on our EPNG system. The product segment was up $11 million driven by continued refined product volume recovery, partially offset by some lower crude volumes in the Bakken. Terminals segment was down 13 million driven by weakness in our Jones Act tanker business, partially offset by the continued refined product recovery volume exceeding volume recovery we've seen there. Our G&A and corporate charges were higher by $28 million due to lower capital spend resulting in less capitalized G&A this quarter versus a year ago, as well as cost savings we experienced in 2020, as a result of the pandemic. Those are partially offset by cost-savings we experienced this year due to our organizational efficiency efforts, as well as lower non-cash pension expenses this year versus last. Our JV DD&A was lower by $30 million primarily due to lower contributions from Ruby Pipeline. Interest expenses, favorable $15 million driven mostly by lower debt balance of this year versus last year. Our cash taxes were a favorable $37 million, and that was due -- mostly due to 2020 payments of taxes that were deferred in the second quarter into the third quarter. So, the full year cash taxes are expected to be just slightly unfavorable to 2020 and slightly favorable to our budget. Sustaining capital was unfavorable this quarter, $64 million driven by spending in our natural gas segment. And that's only slightly more than we budgeted for the quarter, though for the full year, we expect to be about $65 million higher than budget, with most of that variance coming into fourth quarter. Total BCF of $1.13 billion or $0.44 per share is down $0.04 from last year. Our full-year guidance is consistent with what we provided last quarter, with DCS at $5.4 billion and EBITDA at $7.9 billion. Moving on to the balance sheet, we ended the quarter at 4.0 times net debt to adjusted EBITDA, and we expect to end the year at 4.0 times as well. This level of benefits from the largely non-recurring EBITDA generated during the first quarter, during the winter storm urea event. And our long-term leverage target of around 4.5 times has not changed. Our net debt ended the quarter at 31.6 billion down 424 million from year-end and up 1.423 billion from the end of the second quarter. To reconcile that change in net debt, for the quarter, we generated 1,000,013,000,000 of BCF. We paid out dividends of 600 million. We've closed the Stagecoach and Kinetrex acquisitions, which collectively were 1.5 billion. We spent 150 million on growth Capex and JV contributions. And we had a working capital use of $175 million mostly interest expense payments in the quarter. And that explains the majority of the change for the quarter. For the change from year-end, we generated 4.367 billion of DCF. Paid out $1.8 billion of dividends, we spent 450 million in growth Capex and JV contributions. We had the $1.5 billion Stagecoach and Kinetrex acquisitions, the 413 come in on the NGTL sale, and we've had a working capital use of $600 million, mostly interest expense payments. And that explains the majority of the change year-to-date, and that completes the financial review. Back to Steve.

Okay. We'll open it up for questions now and as we usually do, we'll ask you to limit your questions to an initial question and one follow-up. And then if you have more, get back into queue and we will get around to you. Michelle?

Thank you, sir. [Operator Instructions]. One moment, please, for the first question. Shneur Gershuni from UBS. You may go ahead, sir.

Hi. Good afternoon, everyone.

Good afternoon.

Maybe let's start off a little bit here. You've been very active the last few quarters on the acquisition in capital front with respect to RNG, renewable diesel, and so forth, sort of expanding on your energy transition plan. You've added to the backlog and so forth, like there have been fewer updates on the carbon capture side. A lot of companies and peers that made some major announcements recently to have models on carbon capture and sequestration. Is Kinder planning to pursue carbon capture as aggressively as some of these announcements that we've seen? Just wondering if you can sort of give us an update on kind of the strategy you're approaching. You talked about some commercial arrangements last time, just some broader thoughts if you may.

Sure. Yes, we are involved in and pursuing carbon capture opportunities. I won't express those in terms of comparisons to others and the announcements they've made. I want to be really clear about this. We view this as an attractive opportunity, but it will take some time to develop. And I think that's important to understand. The 45Q tax credits, as they were finalized at the beginning of this year, do make economic certain investments, primarily related to capturing the flu stream off of ethanol facilities and gas processing facilities and primarily those in West Texas, which are adjacent to our existing CO2 infrastructure. So, there are some things to work through here, and let me give you a few examples. One is you have to get the underground injection permits, that's a long drawn-out process today, that should get shortened up in Texas, in particular. In the legislature last time, they gave the Railroad Commission primacy on that. They have to go apply for that at EPA, but that'll shorten up the process from a five- or six-year process to something much more brisk, I would think. And then the other thing to think about is just the pipe itself. So, the pipe, it's more -- much more efficient, far more efficient to move CO2 in liquid form. That requires high pressure, special purpose pipe, which we have, 2,000 TSI through the pipe. That's not something that you can achieve with a repurposed oil or gas pipe. Now, we've looked at this and we think it is, and for certain applications, particularly smaller volumes, shorter distances, there are potentially some repurpose opportunities. I think the break-even cut off there, it's like 350 a day or less, in order to make that more attractive. But otherwise, you need some specialized facilities to move it efficiently and to inject it into the ground. And so, we think we've got an advantage in that. We've got to get the permitting shortened up, and we got to get customers who are nearby our infrastructure in the boat, if you will. But it's not a tomorrow thing, it's probably not a next year thing. It's something that's going to take a little bit of time to develop, but we are in active conversations.

Great. Appreciate the color there, Steve. Maybe for a follow-up question. Given the challenges with securing natural gas by many customers during which you’re sort of hearing during the first quarter, you’ve got higher gas prices right now as well also. Are you seeing interested or actual contracting activity around your system, say in Haynesville, or any of your pipeline and storage assets more broadly where we can see some potential growth where you sort of take this spot environment that's pretty juicy right now and sort of convert it to some longer-term contracts?

Yeah, we've signed up some incremental business in Texas and we have also been able to, particularly on our flexible storage. We have seen rate increases, pretty good rate increases because I think everybody got a bit of a wakeup call on the underlying value of storage and we are working on additional incremental business. We have talked publicly with regulators and others about a project that would add additional delivery capability in the state of Texas that would help support more power and human needs, loads, even outside of what is really our current more active market area. But we think too that we're seeing that really across the country, that as things tighten up in these markets, people are putting value as they should, put value on firm deliverability and let's face it. Supply hasn't quite kept pace with demand, particularly as export demand has grown, power demands come off a little bit, as Kim mentioned, but it's fairly strong and industrial demand is strong. Residential commercial is seasonal, but the demand has outstripped supply and the producers are working on it, but it hasn't come back as fast as it came back, for example, when we merged out of the 2015, 2016 downturn. So, the value of deliverability, firm deliverability as you get more intermittent resources in the generation stack, as people look at winter coming, as people look at the experience we just had, we think that that's going to be attractive and we're seeing that in real transactions.

Thank you. Our next question comes from Spiro Dounis, from Credit Suisse.

Hey, Good afternoon, everybody. Steve, I asked you about gas macro last time, and didn't think I'd ever ask you again, but here we are at $5 to $6 gas. And so, it seems like a lot of change since August. So, would just love refresh thoughts on that front in terms of what you think is going to take to kind of normalize prices here. To your point, we haven't really seen that supply response yet. What do you think that's going to take? What are producers telling you they need to see and when? And then alternatively, Kim, you mentioned that some of the power plants have taken less deliveries because of the higher pricing. Is demand destruction something we need to worry about at these price levels?

Okay. Let's start with the first one on the gas macro, and I'll call in Tom to fill in on this here. As Kim mentioned, we are starting to see some sequential improvement -- sequential quarter Q2 to Q3, and there’s about – been a lot more lively conversation, I think, with producers who are bringing some rigs in and starting to share some development plans. We've had some timing shifts in the Bakken, as Kim mentioned. But generally speaking, I think it's the case that producers are responding, but again, not responding as quickly as they did in the last downturn. And as many have reported, you're seeing the publicly traded producers continue to be exceedingly disciplined about coming back in. They're enjoying the higher prices, but not responding as much out of the concern about capital discipline. However, I think something on the order of half of the rigs in the Permian now are owned by private players. And so, the supply will come back, whichever capital source drives it. It's just been coming back a little bit slower. Tom?

I think you covered it well.

Okay. And then on the -- you want to talk about power demand at current pricing?

Yes. I mean, we have seen some degradation in power demand due to higher gas prices, but not as much as you would expect and certainly not what we have seen in prior years. And then a lot of that has to do with full retirements and just the need to backfill renewable power on an intermittent basis. And so, again, a slight decrease, but not significant and we still see, as Steve said, power customers wanting to sign up for services to firm up their gas-fired power capabilities on a longer-term basis. I think that all looks good for the future.

Great. That's helpful color. Second one, just maybe getting your latest thoughts around capital spending going forward kind of on a multiyear basis. Historically, you guys have talked about $2billion to $3 billion spending in any given year. And then, of course, with the pandemic and the slowdown, I think that fell to sort of $1 billion or less, was the new number. But since then, we've seen the outlook kind of dramatically improve, especially when you consider a lot of the energy transition opportunities in front of you that Rich mentioned earlier. And so just wondering, how do you think about an appropriate level of growth CapEx or M&A spending, however you want to think about it going forward, that sort of keeps you within your target leverage and also allows you to grow the dividend?

Yes. So when we sort of adjusted the outlook from 2 to 3 to something lower. We adjusted it to 1 to 2, and we still think that that's a pretty good estimate. And this year, we ended up on the expansion capital front under $1 billion, as you I mentioned, so we're at about $800 million for this year. And look, this is a function of kind of what – what kind of activity there is out there. A lot of the -- some of the new origination did come in, the renewable diesel area and the renewable natural gas areas we talked about earlier. But we continue to have 53%, I think, of our backlog is for natural gas. And so we still think the one to two is about right. I think it is 2 points here. One, really big mega-projects, it's no secret to anybody, those are harder to permit and build. But a lot -- on the other hand, a lot of the growth is on the Texas and Louisiana Gulf Coast, the growth in gas demand that we expect. And we're just starting to hear a little bit more from Permian players about the need for another pipeline. They don't need it right now, but their timeframe on when it might be needed out of the Permian has moved up a bit. And so those discussions aren't very advanced. It's just kind of a function of current prices in both crude, and to some extent natural gas. But really huge projects I think are probably not as likely to get done or permitted. And so, we think the one the two is still probably about right, building off our existing network at attractive returns.

And let me just emphasize, as Steve said so many times that we're going to be very disciplined in this approach to spending capital. Make certain that these are satisfactory returns. And I agree with the kind of range Steve is talking about but as we've explained, we have a lot of uses for our capital and we're going to be very judicious about how we use it.

Thank you. Our next question comes from Jeremy Tonet from JP Morgan. You may go ahead, sir.

Hi. Good afternoon.

Good afternoon.

I want to touch on carbon capture a bit more here and just wanted to get your thoughts on how you think this can unfold. And do you think that the hub concept is really needed to move forward efficiently, what the University of Houston and RISE (ph.) in Colombia have discussed in their papers, or do you think that stand-alone projects on carbon capture can move forward by themselves?

Well, we're exploring the standalone projects. I mean, we're open to discussing other -- or larger opportunities as well, and perhaps -- given that we know how to build, own, operate CO2 pipe, perhaps participating in the transport piece of [Indiscernible]. But, again, for all the reasons I've said before, I think there's a lot of wood to chop before we see those bigger projects come through. Jesse, anything you want to add there?

No, I agree. I think the standalone probably we quicker, you just have multiple party that have to come together to get it on the hub concept.

Got it. That's helpful there. And then as far as it relates to what Kinder could do going forward, do you see it mostly just organic growth off your footprint or do you see kind of the two projects that already have commercial backing and moving forward that are servicing ethanol production in the CO2 off that in the upper Midwest? is that the type of thing that Kinder could get involved with or just sticking to your own asset base?

Again, in carbon capture here. Yeah. We've looked at -- we've looked at some and again, I just want to emphasize, look, I think carbon capture and sequestration, if we're going to meet climate objectives over the long term, is going to have to be part of the picture. And some work is going to have to be done there. But I'm just trying to set expectations at a rational level at how quickly we think that's likely to unfold and where we think the first projects to get done. And so, there's a focus on our existing network, but we have had discussions with people off the network about the potential to capture and sequester carbon those. Thanks, are still in early stages, but there are things that we would explore if the returns were good.

Thank you. Our next caller is Michael Blum from Wells Fargo. You may go ahead, sir.

Thanks. Good afternoon, everyone. I wanted to go back to Rich, your opening comments, you referenced potentially, I think private investors perhaps partnering with you to invest in the business. Can you just expand on that comment? Are you sort of suggesting public markets may or may not be there so you might be looking at other sources of capital?

No, what I'm saying is that we think we're creating real value as we move towards critical mass in our energy transition ventures group. And at some point, at the time of our choosing when we feel we have critical mass and still have significant growth opportunities, which we think are there in spades. Then I was saying that we believe, and the Board believes that we would have the opportunity to partner with public or private ownership on terms that we think will be very favorable to us. We think this is a platform that deserves and will receive a lot of investment interest when it gets to be the appropriate time.

Okay. Got it. Thank you for that. Totally changing gears. I wanted to ask a little bit about the EOR business, just given the increase in oil prices, I guess. Have you been able to lock in higher-priced hedges going forward, and are you thinking about that business any differently in terms of allocation of capital, given the higher prices.

Yeah. We continue to layer on favorable hedges. Last quarter, we've been able to really lift the backend of our hedge profile. So that's a positive that we are seeing some organic growth within our existing assets as prices increase. So, we think that will continue.

And our next question comes from Tristan Richardson from Truist Securities. You may go ahead, sir.

Hi, good afternoon. Just to follow-up on the gas s storage comments and your commentary there on positive signs of renewals. Could you just generally frame up for us where contracted capacity is today or relative to nameplate or capacity available today for potential customers that as you say, are waking up to the value proposition of gas storage?

Well, you got to think of it in several buckets. 1, I mentioned that if we got it under contract, we are looking at a storage expansion opportunity, specifically in Texas. We have storage that's rolling off and renewing every year. We try to keep that fully under contract or pretty fully under contract as that happens. We're expecting -- well, we are seeing and we're expecting we will continue to see those values improve. But I want to make -- prove that point about the bucketing here. Really flexible storage, like we have about 30 or 40 BCF of that in our Texas intrastate business. Stagecoach is a pretty flexible storage asset as well. That's where the value is really appreciating the most. If you think about some of our shorter-term storage related services like park and loan in a backward dated market, there's not as much opportunity to park gas for customers. And so that shorter-term business gets a little more limited. But in the aggregate and in the overall outlook, storage is becoming more valuable in our judgment. And that's what made -- and we're seeing that and it's also what made the acquisition opportunity, which was somewhat fortuitous, but made it attractive to us.

Helpful. Thanks, Steven. And then switching gears, a small piece of business. But can you talk a little bit about the bulk business and being closer back towards 2019 levels? Can you talk about just some of the dynamics we're seeing with all commodity inflation and supply dislocation? You see some of this backdrop is as -- a positive, tailwind from both businesses, either on the pricing side or the capacity utilization side?

John Slasher.

Sure. We see most of the growth in the coal area where we were up 40% on the quarter and in the steel area where we're up 38%, which kind of mirrors what you're seeing from an international standpoint. U.S. production was up 39% and exports were up 45%. So, we've been following along to that. We're back at our pure nine facility, which is where the predominance of our export business is on the COO back to 2019 levels as we stand today.

Thank you. Our next caller is Keith Stanley from Wolfe Research. Sir, you may go ahead.

Hi. Good afternoon. So, having closed the Kinetrex steel now, can you just give an update on I guess the opportunities that you see in RNG, and whether you think that'll be a significant part of your capital plan over the next several years, either through acquisitions and or organic growth? And then relatedly, can you just talk to any progress or developments in the voluntary market that you're seeing as you try to term out rent exposure, there?

Sure. So Kinetrex, the three projects, as I believe Kim mentioned, that they -- that came with the deal, if you will. Those were all under contract -- under EPC contract, et cetera, at the time that we closed. That's been kicked off. Those are on track. In terms of the opportunity set, there are hundreds of landfill opportunities, but there are other competitive players out there. We think we bring some scale to that business. The returns are attractive. The capital commitment is 25 million to 40 million essentially per installation. I guess what I'd say, Keith, is that it's a little early to tell right now when and how much. We're keeping a very close eye on it. There's a lot of interest, there's shadow backlog, if you will, customer discussions underway on a significant number of additional landfills, but there's work to be done commercially and all of that from here to there. But it's very economic and we've got some scale we believe to help commercialize this, maybe more quickly than others. Optimistic, but hard to quantify the win and the -- the win and the how much right now. The voluntary market we have good, real conversations with real counterparties who are interested in buying in the voluntary market, that means without the RINS value and without the RINS volatility. And -- but at very nice returns that are -- that would locked in. And so, I think that market is real because of the ESG commitment and the [Indiscernible] commitments that people are making. Their interest in doing -- using renewable natural gas is strong. And so is the interest in the transport market. I mean, when you think about the technological and economic barriers of electrifying heavy-duty trucking, compressed natural gas, and even LNG is an attractive alternative that helps some of the big fleet operators meet their climate objectives and do so at attractive prices. And the other thing I would mention is we sell our RINS not quite exactly at the time we generate them but we've pretty much sold our RINS inventory for the year and at prices that are better than what we had in the acquisition model.

Thank you. Our next caller is Chase Mulvehill from Bank of America.

Hey, good afternoon. I guess the first question is really around LNG. You've got 2Bs a day coming online for LNG exports over the next 12 or 18 months with [Indiscernible] surpassing. It says that -- Could you maybe walk through how you think this is going to impact your transport volume, and then if you're going to get some pull-through on the G&P side. I know that you said you got about 50% market share, so should we expect about 50% market share on the incremental 2Bs that come online over the next 12 to 18 months?

Yeah, I mean, so we do have incremental projects that we're serving. We don't have contracts with both of those facilities but we certainly have a lot of business with Cheniere and as their capacity grows, we certainly have commitments to grow with them. We do have other projects that we are in active discussions --on projects that we believe will be FID probably sometime next year. And we think we'll get our share of that capability as well, then that doesn't end our back log right now.

Okay. All right. And then one follow-up, just sticking on the LNG thing and thinking about LNG in response resource natural gas. Are you having LNG operator's request response resource natural gas as a feedstock? And today is actually responsibly source natural gas getting a premium out there in the market today.

Now, the transactions that we've done, there hasn't been a premium to-date, but I think the interest has really escalated here of late. And the LNG customers are interested in the overall carbon content of their cargoes, and that includes methane emissions. And what they would tell you and what they've told us is we're not their problems. Their problem is just making sure that they have producers who are using the right tech -- completion techniques, etc. But there is interest in that, particularly as they're trying to place cargoes in Europe --and they are very focused on it. And we are working closely with them to make sure we do our part. But it is a very much a point of interest with our LNG customers.

Our next caller is Gabe Moreen from Mizuho. You may go ahead, sir.

Hey, good afternoon, everyone. I'll only ask 1. Cause I know everyone wants to get to the Astro Game, but around the $64 million emissions reductions project on the ship channel, I'm just curious of the evolution whether there's going to be a return on that project and also is that something I guess that's just specific to the HFC or can you take what you're doing there and apply it to some of your other hubs as well, is there interest in doing that?

Yeah. I mean, it's a project where we've got existing vapor combustion units, and we're replacing those vapor combustion units with vapor recovery units. And so, there is an economic return. The economic return comes from, as we capture those vapors, then we can sell that product. And then the other vapor recovery unit is a little less than a tenth of combustion and so there's natural gas savings. So, there is an economic return associated with the lower cost of running the equipment and with the volumes that we're recovering. And that gets us to a nice economic return. We haven't counted anything in the return for the emissions reduction, but we are going to get a 72% reduction in the emissions from that facility on this project -- from this project.

And Kim, you reckon to tell us -- a slight fall to that -- Is the Board starting even to put a price on CO2, implicitly when you're discussing on projects?

We have not put a price on CO2 when we're discussing projects. It is a non-quantitative consideration. But the projects need to -- on a quantitative basis, need to clear the hurdles.

Our next caller is Michael Lapides from Goldman Sachs. You may go ahead, sir.

Hey, thanks you-all for taking my questions. I have 2. First of all, can you talk a little bit about timing, for either the Permian or the Haynesville of when you might think either basin, or what your customers are saying about when either basin would need to do long haul capacity. That's question 1. Question 2, steel prices are through the roof, labor is up a good debt, how should we think about if new larger pipelines are needed for 1 or 2 basins? What cost inflation means for potential returns or potential tariff levels?

Okay. Yeah, I mean, on the Permian takeaway, what we had talked about before is the need being there in 2025, call it. And now, that's probably at least, based on some conversations with customers, maybe moved up a year. Now, Michael, I just want to point out; need and contract signatures can sometimes be two different things that occurred two different points in time. And so, I think it's going to be -- we'll be having commercial discussions and we'll see whether the real commitment demand is there. And we'll see how that plays out really probably over the next year or so. Tom, on the Haynesville, in terms of the timing there?

Yeah. So, there is 1 project that is FID that will be in the market in 2023. So that will help relieve some takeaway pressure. And then we think there is a need for some expansion projects sometime in the same mid-2025 to 2028-time frame for additional BCF or so.

And then on your question on steel costs and the like. Yes, they have absolutely gone up. We were looking at some information on up rolled coil, which is what goes into the pipe mill to make pipelines. That's up three necks year-over-year, it's up 90% or so year-to-date. And -- but the thing about it is that there is capacity in the world market and so we've got a current dislocation, and the view would be and you see to the extent people are willing to quote forward that it starts to come down. But any case, we've been here before in terms of needing to protect us from escalation in steel prices. We've included in past projects steel trackers, sometimes we needed them, sometimes we didn't. But -- and the other thing we're doing really across the board on materials is when we're evaluating a project for approval, we make sure to ask, has this been updated for current equipment, materials and steel prices so that we make sure that we get that priced into the deal. To your real question, don't think it is an obstacle to getting an additional long-haul hype done.

Thank you. Our next caller is Colton Bean from Tudor, Pickering, Holt & Company. Sir, you may go ahead.

Good afternoon. So just looking at Terminals, I think the release would it be for Jones Act. It was a key driver of some of the softer margins there. Are you seeing counterparties that exercise any of those renewal options, or do you expect mostly spot exposure as we look at 2022? And then just a related question, that should be expecting any additional idling to [Indiscernible] OpEx there?

Okay. John?

Yeah.

We don't expect any additional idling. We were able to weather the storm through COVID with no impact. It hit us this year like it hit the entire industry. 25% of the capacity of roughly 45 vessels was idled at any given point this year. We had 2 that have been idled all year and rough rule of thumb is $3 million per quarter per vessel. We've been able to re-contract all of the other vessels as the year has gone on, or put them in spot for a short period of time until we were able to get those re-contracted. Our exposure, if you look kind forward into '22 is about 22% of the fleet days.

I appreciate that update. And then maybe switching gears here -- just checking on a hydrogen, obviously a longer-term opportunity, but we've seen a number of pilots, and I think just this morning had a larger steel production announcement. So, are you seeing any requests for blending on the transportation network as we look out a few years?

Yeah. We're having conversations with customers about that. It is as you pointed out, it's still a bit of an economic challenge. That doesn't mean it won't happen, but it does mean that you have to have something that will cover that economics like the ability to pass it through to a retail customer in a utility context, or something like that. Again, this is one of those things like [Indiscernible] that presumably will be part of the solution over the long term, but we're still in the early innings on it right now with pilots and experiments and announcements, but not -- we don't have real concrete commercial activity at this point.

Thank you. Our next caller is Sunil Sidal from Seaport Global Securities. You may go ahead sir.

Hi. Good afternoon, everybody. And thanks for taking my question. So, my first question was related to a clarification on your opening remarks. I think you mentioned that in the Bakken, the volume picks up has been somewhat slow. Did I hear that correctly? And if so, what in your mind changes that trend? Obviously, the commodity strip is fairly strong looking forward.

Yes. So, I think that dynamic is changing in terms of producer plans to continue to adding -- to continue to add wells to our system. They are absolutely doing that and the rigs are running and they are drilling and getting the work done. I think it was just that the connections were a little slow. The wells to be put online were a little slower, than what we had anticipated for the year. But it's still, we think robust growth opportunity for those assets both on the gas and the crude side.

Got it. So, it's just a matter of time.

Yeah.

The second question is related to the volatility we've seen in the natural gas markets and the spreads [Indiscernible] drop. I was just curious, has that kind of changed your view on the Ruby Pipeline? Obviously, some of the contracts that have ruled off. And I was curious in actually seeing the impact of this spreads widening on that pipeline, and how should we think about that asset going forward?

Not particularly on Ruby. From time-to-time there's some activity there depending on what's going with the pipelines coming down -- what's going on operationally with the pipeline is coming down from Canada, but no change in our outlook there. And no change in our update on our view on Ruby, which is -- we're going to make as Kinder Morgan, an economic decision for Kinder Morgan shareholders when the debt comes due.

And sir, at this time, I am showing no further questions.

Thank you. Obviously, everybody wants to get off and watch that baseball game up in Boston. Thank you very much.

And thank you. This concludes today's conference call. You may go ahead and disconnect at this time.