Kinder Morgan (KMI) has started partial service on an expansion of the Markham gas storage facility on the Texas Gulf Coast. The announcement supports a trend East Daley Analytics expects to see of growing investments in natural gas storage assets.
KMI updated on the project in its 4Q23 earnings. KMI is expanding working gas capacity by 6 Bcf at the Markham facility, located south of Houston in Matagorda County, TX. The company is adding a new salt cavern to increase withdrawal capacity by 650 MMcf/d onto KMI’s Texas intrastate pipeline system. KMI placed the Markham expansion partially in service on November 1, 2023 and expects to start full service in June 2024.
Kinder Morgan joins midstream giants Williams (WMB) and Enbridge (ENB) in raising their investments recently in natural gas storage. KMI is one of the largest storage operators with interests in 702 Bcf of working gas capacity, and the Markham expansion will add to the company’s sizable assets.
East Daley monitors storage revenue reported in Federal Energy Regulatory Commission (FERC) filings by major pipelines in the Gulf Coast region. Using contracted storage volume and revenues, we have backed into storage rates earned by different pipelines. We find the weighted average rate for storage service has increased 21% since 2018 for pipelines with access to Gulf Coast storage fields, or a ~3% CAGR in storage rates (see chart).
Storage rates are increasing for a number of reasons, as we discuss in the new Dirty Little Secrets annual report. Price spreads between the summer and winter seasons drive the intrinsic value of storage assets, and these spreads have grown wider recently. Pipeline loads are also becoming more variable, led by growth from new LNG facilities and power generation. Extrinsic factors like renewables, extreme weather, and higher overall market demand result in more reliance on storage to manage supply and demand fluctuations.
In the latest Dirty Little Secrets, East Daley predicts interest in natural gas storage will pick up in 2024. In our view, developers have not increased storage capacity to keep pace with the growth in demand. The value of assets already in the ground is increasing as a result. – Zach Krause Tickers: KMI.
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