Inside Kinder Morgan Inc (KMI): Natural Gas Pipelines – Kinder Morgan Energy Partners LP (KMP), El Paso Pipeline Partners, L.P. (EPB)

This year will also see the dropdown of most of the remaining El Paso Pipeline Partners, L.P. (NYSE:EPB) assets. On March 1, KMI announced that it sold its remaining 50% stake of El Paso Natural Gas pipeline and El Paso’s midstream assets to KMP. That leaves a 50% stake in the Ruby (a Wyoming-to-Oregon natural gas pipeline), and a 50% stake in the Florida Gas Transmission system left to drop down to KMP.

Big buyout
And of course we can’t forget Kinder Morgan’s $5 billion acquisition of Copano Energy. Copano is a big player in the Eagle Ford shale, and Kinder Morgan knows how important that region is to future growth. The 64% jump in the partnership’s natural gas business last quarter can primarily be attributed to the increased demand for natural gas in power generation and that East Texas shale play.

Copano’s Eagle Ford assets include the third-largest nat-gas plant in Texas, the Houston Central Processing Plant. The facility process both natural gas and natural gas liquids arriving from East Texas via pipeline. The plant currently has a fractionating capacity of 44,000 barrels per day, and the company expects to add 400 million cubic feet per day of cryogenic processing capacity by the end of March.

By the end of this year, Copano’s Eagle Ford natural gas assets will feature more than 1 billion cubic feet per day of pipeline and processing capacity, and more than 100,000 barrels per day in fractionation capacity. That’s significant, but the best part is that the vast majority of these assets are fixed-fee revenue-generating contracts. In fact, 64% of Copano’s total business is fee-based.

The stability of fee-based revenues bodes well for future distribution increases at KMP. Starting next year, the acquisition is expected to add $0.10 per unit to the partnership’s earnings for at least five straight years.

Foolish takeaway
Kinder Morgan’s natural gas pipelines business is an important part of its energy network, and the company will continue to diversify the segment as time goes on. Its natural gas liquefaction projects are the perfect example of Kinder Morgan Energy Partners LP (NYSE:KMP)’s growing beyond pipelines. The diversification of revenue is always important. Now that we’ve broken down exactly what the segment looks like, we can better evaluate its progress in the coming months and years.

The article Inside Kinder Morgan: Natural Gas Pipelines originally appeared on Fool.com and is written by Aimee Duffy.

Fool contributor Aimee Duffy has no position in any stocks mentioned. Click here to see her holdings and a short bio. If you have the energy, follow her on Twitter, where she goes by @TMFDuffy. The Motley Fool recommends El Paso Pipeline Partners and Kinder Morgan and owns shares of Kinder Morgan.

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