The Morgan children (KMI -0.59%) formed a new business unit in 2021 to capitalize on commercial opportunities as the global economy transitions to low-carbon energy. The initial focus of his new group Energy Transition Ventures was to build a renewable natural gas platform. Opportunities in other sectors, including carbon capture, utilization and sequestration (CCUS), were also evaluated.
The company recently took its first step toward leveraging that potentially massive opportunity. It leverages its existing infrastructure and expertise in carbon dioxide to capitalize on the first of what could be many opportunities in the space.
Seized his first opportunity
In his fourth quarter reportKinder Morgan announced that it had signed an agreement with the Red Cedar Company (a 51/49 joint venture between the Southern Ute Indian Tribe Growth Fund and Kinder Morgan) to provide carbon dioxide services on its existing Cortez Pipeline . The company will also permanently sequester the coal captured in a well in the Permian Basin.
The partnership will allow Red Cedar to move forward with a carbon capture project at two natural gas processing facilities in Southern Colorado. The project will capture up to 400,000 metric tons of greenhouse gas per year.
The management of the company discussed the project on its own fourth quarter call. It is noted that the project is relatively small. The company would move about 20 million cubic feet of carbon dioxide per day, a fraction of the more than 900 million cubic feet per day that currently flows through Cortez.
This big carbon dioxide pipeline moves gas from natural underground formations in the Rockies to the Permian Basin for use in enhanced oil recovery. But despite the small scope, the company expects to earn attractive returns on the project comparable to its traditional energy activities.
CEO Steve Kean said:
This is a good opportunity for us. CCUS has to be part of the long-term solution. And we have the ability to transport it and put it on the ground and keep it on the ground. And so, there is a good long-term opportunity. And this is a highlight that you can do these things and you can do them economically. And so, we are happy with this transaction. It is the first, we hope, of many, but there are many things that need to be worked on.
Explore CCUS opportunities for Kinder Morgan
Oil companies believe that CCUS will emerge as a major global market in the coming years. ExxonMobil (XOM 1.82%) see that it will become a $ 4 trillion market by 2050, while Western Petroleum I believe it could be a $3 trillion to $5 trillion opportunity.
Given current costs, most carbon capture opportunities are not yet economic. But the future tax credits will make it economical for more facilities:
This is because energy companies are starting to sanction CCUS projects with solid economics. For example, Exxon signed a landmark agreement to capture and transport carbon dioxide from an ammonia plant that CF Industries (cf 1.28%) is built in Louisiana.
This largest project of its kind will capture up to 2 million metric tons of carbon dioxide per year, the equivalent of replacing 700,000 gasoline-powered cars with electric vehicles. It allows CF Industrial to commercialize “blue” ammonia, allowing it to provide that low-carbon energy source to help decarbonize other industries.
Meanwhile, giant refinement Value (VLO 3.08%) is working with the investment monster BlackRock and midstream company Navigator Energy Services on an industrial-scale coal capture pipeline system in the Midwest. Valero is the anchor carrier on the system supported by the coal captured in its ethanol plants. The project could store up to 5 million metric tons of carbon dioxide annually.
With extensive existing infrastructure and expertise, Kinder Morgan is in an excellent position to capture these types of CCUS opportunities as they emerge. As costs come down and credits come into effect, more potential projects will become economically viable.
The first of what could be many opportunities
Kinder Morgan is working to capture its first CCUS project. Although it is a small business, it should earn attractive returns. The project also puts the company in an even better position to capitalize on the potentially huge CCUS market, which could become a key driver of long-term growth.