Kinder Morgan Energy Partners LP (KMP): Who Will Deal with All of This Fracking Natural Gas?

Kinder Morgan Energy Partners LP (NYSE:KMP) is a master limited partnership based in the United States. Kinder Morgan recently completed a merger with competitor El Paso Pipelines to become the largest mid-stream energy company in the US. Boasting over 72,000 miles of pipeline, Kinder Morgan is also the third largest energy company in the country overall. As we see natural gas become more and more prevalent in our day-to-day economy, Kinder Morgan will solidify itself as one of America’s most essential companies.

Kinder Morgan Energy Partners LP (NYSE:KMP) saw the merger with El Paso become accretive to earnings this year, raising its dividend to $1.30, or 5.6%. The company has an operating margin of 27% and continues to expand its presence in natural gas storage and transportation.

The sun is shining on energy production in the US, and natural gas is in the forefront.

Export

As more export terminals are built out, we will see natural gas prices rise in the United States as international demand increases. Companies like DuPont Fabros Technology, Inc. (NYSE:DFT) and The Dow Chemical Company (NYSE:DOW) are looking to keep the glut of American natural gas in the US to depress prices, but to little avail.

The US economy will benefit more on the whole by selling its natural gas to countries that don’t have the resources or expertise to take advantage of underground natural gas. As more gas is sent to the coasts for shipment, we will see both midstream gas companies and railroads benefit from the added freight shipments.

Fleet demand

Waste Management, Inc. (NYSE:WM) is one of the first company’s to roll out a large-scale fleet of natural gas-burning trucks, having over 2,000 of these trucks on the road already and 16,000 more that will be converted. Waste Management cites the low cost of natural gas compared to diesel as a major way to decrease expenses. The company currently has operating margins of 13.5% and is looking to increase them by reducing its expenses.

Waste Management, Inc. (NYSE:WM) currently pays out a higher percentage of its earning than its peers in the refuse industry, paying out 81% versus an industry average of 51%. We will continue to see these companies roll out more fleet refueling stations that are open to the public, further increasing demand for natural gas.

Resistance to pipelines

In the wake of the recent Exxon Mobil Corporation (NYSE:XOM) pipeline bursting in Arkansas, more focus was placed on the maintenance of pipelines. If more people resist projects like the XL pipeline project from Canada to the Gulf of Mexico, we will see another industry pick up the slack: railroad operators. Companies like Union Pacific Corporation (NYSE:UNP) have already been sending more cars to areas that contain natural gas fields to make up for the lack of pipeline infrastructure.

Railroads like Union Pacific are a more expensive alternative to moving black gold and compressed natural gas. Union Pacific Corporation (NYSE:UNP) is also more versatile than Kinder Morgan Energy Partners LP (NYSE:KMP), however, and its cars can easily be modified to move other goods such as automobiles as needed.

Union Pacific currently has operating margins of 32.5% and has some high growth potential. One cause of growth is increased agricultural shipping; a study by the US Department of Agriculture in 2008 stated that the largest increase in agricultural output in America would be from the northwest due to several factors, the largest of which is land prices increase in southeast as urban sprawl claims land that was once used for crops. In addition to this, growth will be motivated by the fact that Union Pacific Corporation (NYSE:UNP) also owns 25% of Ferromex, the larger of two Class 1 railroads in Mexico.

Foolish bottom line

Both railroads and midstream pipelines are a great way to play the natural gas boom. A key difference between Kinder Morgan Energy Partners LP (NYSE:KMP) and Union Pacific is their yield and flexibility. Currently Kinder Morgan has a yield of 5.8%, while Union Pacific yields only 1.8%. Both companies can benefit tremendously from the natural gas boom.

Kinder Morgan Energy Partners LP (NYSE:KMP) benefits more directly from the natural gas boom, but Union Pacific Corporation (NYSE:UNP) has the added benefit of being able to shift its cargo away from natural gas if hydraulic fracking falls out of favor. Both companies would help to boost your portfolio as we enter an age of natural gas.

The article Who Will Deal with All of This Fracking Natural Gas? originally appeared on Fool.com.

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