Domestic natural gas storage capacity has not kept up with growth in the market overall, contributing to higher rates and a need for more places to store supply, according to Kinder Morgan Inc. (KMI) CEO Kim Dang.
The gas market since 2015 has grown by about 30 Bcf/d, or by 39%, but storage capacity only increased by about 1% over the same period, Dang said Wednesday at the Barclays CEO Energy-Power Conference.
KMI recently completed a 5 Bcf expansion at an existing storage facility and approved a 10 Bcf project through a joint venture pipeline. It also is evaluating numerous brownfield opportunities, said the CEO.
“On the greenfield side, people are starting to have conversations” about newbuild storage projects, Dang said. “Greenfield hasn’t been in the money. But I think as storage rates have stayed higher for longer and people continue to see more and more need for storage, I think at some point we’re going to get to the point where greenfield storage will make sense.”
In addition to the lack of new capacity, “the other thing that you’ve seen in the market is that you’re getting more and more volatility in the demand curves,” Dang said.
Storage injections and withdrawals typically were more predictable and weather-based, she explained. “Now you’ve got a couple of other factors that are contributing to volatility.” One is the growth in power generation from variable output wind and solar farms, Dang said, noting that “gas is really the only power source that you can call on” when the renewable sources are not available.
LNG export demand, meanwhile, “creates more volatility in the natural gas demand profile because if you have a facility go down, and you’ve got 2 Bcf/d or more gas headed to that facility…then you’ve got to find a place for it to go.”
Beyond Data Centers
KMI’s roughly 66,000 mile pipeline network transports about 40% of U.S. gas production. Citing Wood Mackenzie projections, KMI expects U.S. natural gas demand to grow by 20 Bcf/d in 2030 versus 2023, driven largely by liquefied natural gas and Mexico exports.
KMI also expects robust natural gas-fired power demand across its pipeline network, and not only to power data centers and artificial intelligence (AI), said Dang.
She said “there’s been a lot of focus on the data center demand, on the AI demand, and really that’s just a piece of the overall power demand that we’re seeing at Kinder Morgan…”
Other bullish factors include more population growth in areas where KMI has a heavy footprint including Arizona, Texas and the Southeast, Dang said. She also cited the trend of onshoring manufacturing operations from overseas, driven by legislation to incentivize bringing semiconductor supply chains home to the United States.
Regional power grid operators, meanwhile, are “wanting to increase the margin of error with respect to their capacity relative to demand,” said the CEO. In Texas, peak power demand reached 86 GW this summer, from 70 GW in 2018, “and I think that’s indicative of what a lot of these states are seeing…You also have demand for natural gas from power plants that are being built south of the border in Mexico. There’s no incremental gas supply in Mexico to serve those, and so that’s going to have to be supplied out of the U.S.”
Coal-to-gas switching in the power sector remains a tailwind for gas demand as well, as coal plants in states such as Kentucky and Tennessee convert to natural gas. Those trends are “playing together to create nice growth in the power markets,” she explained.
To accommodate growing gas demand in the Southeast, KMI recently sanctioned a $3 billion expansion of its Southern Natural Gas Co. LLC pipeline system, which primarily serves the Alabama, Georgia and Mississippi markets.
“Our customers in those markets have been seeing what everybody else has been seeing in terms of increased demand for power, as well as increased demand for natural gas,” Dang said. A recently concluded open season for the project secured 1.2 Bcf/d of binding capacity commitments for the 3 Bcf/d project.
In Texas, meanwhile, an expansion of KMI’s Gulf Coast Express LLC pipeline that moves gas from the Permian Basin to the Texas coast, will occur at some point. “In my view that’s more about when, not if,” Dang said.
