Kinder Morgan, Inc. (KMI) Q3 2021 Earnings Call Transcript

Kinder Morgan, Inc. (NYSE: KMI) Q3 2021 earnings call dated Oct. 20, 2021

Corporate Participants:

Richard D. Kinder — Executive Chairman

Steven J. Kean — Chief Executive Officer

Kimberly Allen Dang — President

David P. Michels — Vice President and Chief Financial Officer

Tom Martin — President, Natural Gas Pipelines

Jesse Arenivas — President, CO2 & President, Energy Transition Ventures

John W. Schlosser — President, Terminals

Analysts:

Shneur Gershuni — UBS — Analyst

Spiro Dounis — Credit Suisse — Analyst

Jeremy Tonet — JP Morgan — Analyst

Michael Blum — Wells Fargo — Analyst

Tristan Richardson — Truist Securities — Analyst

Keith Stanley — Wolfe Research — Analyst

Unidentified Participant — — Analyst

Gabe Moreen — Mizuho Securities — Analyst

Michael Lapides — Goldman Sachs — Analyst

Colton Bean — Tudor, Pickering, Holt & Company — Analyst

Sunil Sibal — Seaport Global Securities — Analyst

Presentation:

Operator

Good afternoon. Thank you for standing by and welcome to the Quarterly Earnings Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session of today’s conference. [Operator Instructions]

It is now my pleasure to turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. Sir, you may begin.

Richard D. Kinder — Executive Chairman

Thank you, Michelle. Before we begin, I would like to remind you, as we always do that KMI’s earnings release today and this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934, as well as certain non-GAAP financial measures. Before making any investment decision, we strongly encourage you to read our full disclosures on forward-looking statements and use of non-GAAP financial measures set forth at the end of our earnings release, as well as review our latest filings with the SEC for important material assumptions, expectations and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements.

Every quarter, I open this call by talking about our financial philosophy at Kinder Morgan. I always mentioned strong and consistent cash flow and explain how we use that cash flow to pay a healthy and growing dividend; internally fund our expansion capex needs; keep our balance sheet strong and opportunistically buyback our shares. I believe our shareholders understand and appreciate the strength of our cash flow, even if there are very positions on what we should do with it. But in a broader sense, if we examine what owning a share of KMI really amounts to. I’ve come to believe as the largest shareholder that we are receiving a very good and growing yield on our investment. While at the same time getting amazing optionality on future developments.

Let me explain that optionality. We have entered the energy transition field with what I consider to be solid investments. The Steve and the team will discuss further. And our cash flow gives us the ability to pursue those opportunities inside if and only if the investment to achieve a satisfactory return. And I believe that if we show desire, we will be able to attract new partners at the time of our choosing, whether public or private to participate in those opportunities with us on terms favorable to KMI.

I also firmly believe that there is still a long runway for fossil fuels around the world, particularly for natural gas. If you read carefully the latest studies from the IEA, OPEC and from various other energy experts, you will see projections that fossil fuels will continue to supply the majority of our energy needs for at least the next quarter century. And then natural gas will be at the forefront of fulfilling those needs. If these projections are anywhere close to accurate, a company like Kinder Morgan with significant free cash flow will find significant opportunities to invest in this core business where we have substantial expertise and a huge network that can be expanded and extended.

So this is another option that you receive as a KMI shareholder. I would add that the events for this fall throughout Europe, Asia, and North America demonstrate that the transition to renewables is going to be a lot longer and more difficult than many of its proponents originally thought. In short, while the world makes the transition, the lights need to stay on, homes need to be hated and our industrial production needs to be sustained.

Finally, we always have the option of returning dollars to our shareholders through selective stock repurchases in addition to the healthy return we are providing through our dividend. This is why I say that an investment in KMI provide you with a nice locked in return with this dividend and then provides really good optionality for the future.

And with that, I’ll turn it over to Steve.

Steven J. Kean — Chief Executive Officer

All right. Thanks, Rich. I’ll give you an overview of our business in the current environment for our sector as we see it, then our President Kim Dang will cover the outlook and segment updates; our CFO, David Michels will take you through the financials and then we’ll take your questions.

Our financial principles remain the same. First, maintaining a strong balance sheet — strong balance sheet helps us withstand setbacks and enables us to take advantage of opportunities. Over the last two years we’ve seen both sides of that coin coming into 2020, we were better than our leverage target and that helped us when we were hit with the pandemic related downturn. Then this year, we saw the other side where our extra capacity created as a result of our outperformance in the first quarter gave us the ability to take advantage of two acquisition opportunities, we see both of those acquisitions is adding value to the firm.

Second, we are maintaining our capital discipline through our elevated return criteria, a good track record of execution and by self funding our investments. We are also maintaining our cost discipline. We have always been lean, but last year at this time, we were completing an evaluation of how we were organized and how we could work even more efficiently, we implemented changes resulting in an estimated full-year run rate efficiencies of about $100 million a year. In that effort we were aiming for something beyond efficiency, greater effectiveness and we can see that coming through in the functions we centralized under the leadership of our Chief Operating Officer, James Holland. We are already seeing the benefits and project management and other functions.

Finally, we are returning value to shareholders with the year-over-year dividend increase to $1.8 annualized providing an increased, but well covered dividend. Strong balance sheet, capital and cost discipline returning value to shareholders. Those are the principles we operate by and we have done so regardless of what is in fashion at the moment.

We have accomplished some important work so far in 2021, which I believe will lead to long-term distinction. First, we’re having a record year financially attributable to our outperformance in the first quarter, we’ve continued to execute well in our projects with our two intrastate gas group projects coming in ahead of schedule as noted in the press release. And we have continued to find new opportunities with a small net increase in our backlog this quarter.

Second, we completed the two important acquisitions, the larger one Stagecoach showing our confidence in the long-term value of our natural gas business and taking our total operated storage capacity to 700 Bcf. We believe in the long-term value of flexibility and deliverability in the gas business, that was demonstrated last winter. We are seeing it with the recent tightening in the natural gas markets here and abroad. And in our rates on storage renewals.

Third, we’ve continue to advance the ball on the ongoing evolution in energy markets and in our ESG performance. As things stand today 69% of our backlog is in support of low carbon infrastructure that includes natural gas of course, but it also includes $250 million of organic projects supporting renewable diesel in our products and terminals business units and our renewable natural gas projects. Repurposing and building assets at our current terminal locations to support the energy sources of the future. Importantly too [Phonetic] that 69% is projected to come in at a weighted average 3.6 times EBITDA multiple of the expansion capital spend. So we’re getting attractive returns on these investments.

Further, our gas team is now concluded three responsibly sourced gas transactions. Those are low emissions along the chain from the producer through our transmission and storage business. We’ll soon be publishing our ESG report including both Scope 1 and Scope 2 emissions. We have incorporated ESG reporting and risk management into our existing management processes and the report will explain how.

In the meantime Sustainalytics has us ranked number one in our sector for how we manage ESG risk and two other rating services have us in the top 10. This is increasingly a point of distinction with our investors, our regulators, and our customers. With all of this, our projects, these commercial transactions in our ESG reporting and risk management we continue to advance the ball on ESG and the evolution in energy markets without sacrificing returns, we continue to focus on the G Governance and ESG as well.

These things are all important to our long-term success and we have advanced the ball significantly on all three in 2021. We believe the winners in our sector will have strong balance sheets, low cost operations that are safe and environmentally sound and the ability to get things done in difficult circumstances. As always we will evolve to meet the challenges and opportunities.

And with that, I’ll turn it over to Kim.

Kimberly Allen Dang — President

Okay, thanks Steve. And so I’m going to start with the natural gas business unit for the quarter. Transport volumes were up about 3% or approximately 1.1 million dekatherms per day versus the third quarter of ’20, and that was driven primarily by increased LNG deliveries and the PHP in service. And then there was some of those increases were somewhat offset by declines on our West site due to the declining Rockies production, pipeline outages and contract expirations.

Physical deliveries to LNG facilities all of our pipeline averaged 5.1 million dekatherms per day, that’s a 3.3 million dekatherms per day increase versus the third quarter of ’20 when there are a lot of canceled cargoes. Our market share of deliveries to LNG facilities is approximately 50%. Exports to Mexico were down in the quarter, when compared to the second quarter of ’20 as a result of a new third-party pipeline capacity added during the quarter. Overall deliveries to power plants were down as you might expect with the higher natural gas prices.

Our natural gas gathering volumes were down about 4% in the quarter, compared to the third quarter of ’20, but for gathering volumes, I think the more informative comparison is the sequential quarter. So compared to the second quarter of this year volumes were up 5% with nice increases in the Eagle Ford and the Haynesville volumes, which were up 12% and 8% respectively.

In our Products Pipeline segment refined product volumes were, up 12% for the quarter versus the third quarter of 2020 and compared to the pre-pandemic levels, which we use the third quarter of 2019 as a reference point. Road fuel’s were down about 3% and jet fuel, was down about 21%. You might remember that in the second quarter road fuels were basically flat versus the pre-pandemic number. So we did see some impact of the Delta variant during the quarter.

Crude and condensate volumes were down about 7% in the quarter versus the third quarter of 2020 and sequentially they were down about 4%. And our terminals business segment, our liquids utilization percentage remains high at 90%, if you exclude tanks our service for required inspections utilization is approximately 97%. Our Rack business, which serves consumer domestic demand are up nicely versus the third quarter of ’20, but they’re down about 5% versus pre-pandemic levels. Now, if you exclude some lost business in the rack closure so trying to get volumes on an apples-to-apples basis. Volumes on our rack terminal slightly exceeded pre-pandemic levels.

Our hub facilities in Houston and New York, which are more driven by refinery runs, international trade and blending dynamics have shown less recovery than our rack terminals versus the pre-pandemic levels. In our marine tanker business, we continue to experience weakness, however, we have recently seen increased customer interest.

On the bulk side, volumes were up 19% so very nicely, driven by coal, steel and pet coke. Bulk volumes overall are still down about 3% versus 2019 on an apples-to-apples comparison. But if you just look at coal, steel and pet coke on a combined basis, they are essentially flat to pre-pandemic levels.

In our CO2 segment crude volumes were down about 6%, CO2 volumes were down about 5%, but NGL volumes were up 7%. On price we didn’t see a benefit from the increase in crude price due to the hedges we put in place on prior period, when crude prices were lower. We do however expect to benefit from higher crude prices in future periods on our unhedged barrels and as we layer on additional hedges in the current price environment. We did see NGL price benefit in the quarter as we tend to hedge less of these volumes. Compared to our budget, we’re currently anticipating that both oil volumes and CO2 volumes will exceed budget, as well as oil NGL and CO2 prices. Better oil production is primarily driven by reduced decline in the base production and better project performance of SACROC.

So overall, we’re seeing increased natural gas transport volumes primarily from LNG exports, seeing increased gas gathering volumes in the Eagle Ford and the Haynesville on a sequential basis. Product volumes are recovering versus 2020, however road fuels were down about 3% versus pre-pandemic levels versus flat with pre-pandemic levels last quarter as we likely saw an impact from the Delta variant. Versus our budget CO2 crude oil production is outperforming and we’re getting some nice help on price.

We’re still experiencing weakness our Jones Act tankers in the Bakken has been a little slower than we anticipated and bringing on new wells, but our producer customers have indicated that there — that they will continue bringing on new production with some wells being pushed into 2020.

With that, I’ll turn it over to David.

David P. Michels — Vice President and Chief Financial Officer

Okay, thanks, Kim. So for the third quarter of 2021 we’re declaring a dividend of $0.27 per share, which is a $1.08 annualized and 3%, up from the third quarter of last year. This quarter, we generated revenues of $3.8 billion, up $905 million from the third quarter of 2020. We had an associated increase in cost of sales with an increase there of $904 million both of those increases driven by higher commodity prices versus last year. Our net income for the quarter was $495 million, up 9% from the third quarter of ’20 and our adjusted earnings per share was $0.22, up $0.01 from last year.

Moving onto our segment and distributable cash flow performance. Our natural gas segment was, up $8 million for the quarter. Incremental contributions from Stagecoach and PHP were partially offset by lower contributions from FEP, where we’ve had contract expirations and lower usage and parking loan activity on our EPNG system.

The product segment was up $11 million, driven by continued refined product volume recovery, partially offset by some lower crude volumes in the Bakken. Terminal segment was down $13 million, driven by weakness in our Jones Act tanker business, partially offset by the continued refined product recovery volume — volume recovery we’ve seen there.

Our G&A and corporate charges were higher by $28 million, due to lower capital spend resulting in less capitalized G&A this quarter versus a year ago, as well as cost savings we experienced in 2020 as a result of the pandemic. Those are partially offset by cost savings we experienced this year, due to our organizational efficiency efforts, as well as lower non-cash pension expenses this year versus last.

Our JV DD&A was lower by $30 million, primarily due to lower contributions from Ruby Pipeline. Interest expense was favorable $15 million, driven mostly by lower debt balance this year versus last. Our cash taxes were favorable $37 million and that was due most diue to 2020 payments of taxes that were deferred into — in the second quarter into the third quarter. For the full-year cash taxes are expected to be just slightly unfavorable to 2020 and slightly favorable to our budget.

Sustaining capital was unfavorable this quarter $64 million, driven by spending in our natural gas segment. And that’s only slightly more than we budgeted for the quarter, though for the full-year, we expect to be about $65 million higher than budget, with most of that variance coming in the fourth quarter. Total DCF of $1,013 million or $0.44 per share is down $0.04 from last year. Our full-year guidance is consistent with what we provided last quarter with DCF at $5.4 billion and EBITDA at $7.9 billion.

Moving onto the balance sheet, we ended the quarter at 4.0 times net debt to adjusted EBITDA and we expect to end the year at 4.0 times as well. This level of benefits from the largely non-recurring EBITDA generated during the first quarter — during the Winter Storm Uri event. And our long-term leverage target of around 4.5 times has not changed. Our net debt ended the quarter at $31.6 billion, down $424 [Phonetic] million from year-end and up $1.423 billion from the end of the second quarter.

To reconcile that change in net debt for the quarter we generated $1,013 million of DCF, we paid out dividends of $600 million, we closed the Stagecoach and Kinetrex acquisitions, which collectively were $1.5 billion. We spent $150 million on growth capex and JV contributions and we had a working capital use of $175 million mostly interest expense payments in the quarter. And that explains the majority of the change for the quarter.

For the change from year-end, we generated $4.367 billion of DCF. We paid out $1.8 billion of dividends, we spent $450 million in growth capex and JV contributions, we have the $1.5 billion Stagecoach and Kinetrex acquisitions, we have $413 come in on NGPLs sale and we’ve had a working capital use of $600 million, mostly interest expense payments. And that explains the majority of the change year-to-date and that completes the financial review.

Back to Steve.

Steven J. Kean — Chief Executive Officer

Okay, we’ll open it up for questions now and as we usually do, we’ll ask you to limit your question to an initial question and one follow-up. And then if we have more get back in the queue and we will get around to you. Michelle?

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Shneur Gershuni from UBS. You may go ahead, sir.

Shneur Gershuni — UBS — Analyst

Hi, good afternoon, everyone.

Richard D. Kinder — Executive Chairman

Good afternoon.

Shneur Gershuni — UBS — Analyst

Maybe just to start off a little bit here. You’ve been very active in the last few quarters on the acquisition in capital front with respect RNG, we know the piece all in so forth sort of expanding on your energy transition plan, you’ve added to the backlog and so forth, but there have been fewer updates on the carbon capture side. A lot of companies and peers had made some major announcements recently on the current models on carbon capture and sequestration. Is Kinder planning to pursue carbon capture as aggressively SNG is announcing [Technical Issues] we’ve seen. Just wondering if you could sort of give us an update on kind of the strategy you’re approaching, you talked about the commercial arrangements last time, just some broader thoughts if you met?

Steven J. Kean — Chief Executive Officer

Sure. Yes, we are involved in and pursuing carbon capture opportunities. I won’t express those in terms of comparisons to others in the announcements they’ve made, I want to be really clear about this. We view this as an attractive opportunity, but it will take some time to develop. And I think that’s important to understand the 45-Q tax credits as they were finalized at the beginning of this year. Do make economic, certain investments, primarily related to capturing the full stream of ethanol facilities and gas processing facilities and primarily those in West Texas, which are adjacent to our existing CO2 infrastructure.

So there are some things to work through here and let me give you a few examples. One is you have to get the underground injection permits that’s a long drawn out process today that should get shortened up in Texas, in particular in the legislature last time they gave the railroad commission privacy on that they have to go apply for that at EPA, but that will shorten up the process from a five or six-year process to something much more brisk, I would think. And then the other thing to think about it is just the pipe itself, so the pipe, it’s much more efficient, far more efficient to move CO2 in liquid form that requires high pressure, special purpose pipe, which we have 2,000 psi through the pipe. That’s not something that you can achieve with a repurposed oil or gas pipe.

Now, we have looked at this and we think it is for certain applications particularly smaller volume, shorter distances, there are potentially some repurpose opportunities. I think the breakeven cut off there is like 350 a day or less. In order to make that more attractive, but otherwise you need some specialized facilities to move it efficiently and to injected into the ground. And so we think we’ve got an advantage of that, got to get the permitting shortened up, and we got to get customers who are nearby our infrastructure in the boat, if you will. But it’s not a tomorrow thing, it’s probably not a next year thing, it’s something that’s going to take a little bit of time to develop, but we are in active conversations.

Shneur Gershuni — UBS — Analyst

Great. Appreciate the color there Steve, maybe for a follow-up question, given the challenges with securing natural gas by many customers during Winter Storm Uri, during the first quarter, you’ve got higher gas prices right now as well also. Are you seeing interest and actual contracting activity around your system and seeing the Haynesville or any of your pipeline and storage assets more broadly, where we can see some potential growth where you sort of take this spot environment that’s pretty juicy right now and sort of compared to take some longer-term contracts?

Steven J. Kean — Chief Executive Officer

Yes. We have signed up some incremental business in Texas. And we have also been able to, particularly on our flexible storage. We have seen rate increases pretty good, rate increases, because I think everybody got a bit of a wake up call on the underlying value of storage. And we are working on additional incremental business. We have talked publicly with regulators and others about a project that would add additional delivery capability in the State of Texas that would help support more power and human needs, loads even outside of what is really our current. More active market area, but we think too that we’re seeing that really across the country that as things tighten up in these markets.

People are putting value as they should, put value on firm deliverability and let’s face it supply hasn’t quite kept pace with demand particularly as — export demand has grown, power demands come off a little bit as Kim mentioned, but it’s fairly strong and industrial demand is strong, residential, commercial is seasonal. But the demand has outstripped supply and the producers are working on it, but it hasn’t come back as fast as it came back for example when we merged out of the 2015, 2016 downturn. So the value of deliverability — firm deliverability as you get more intermittent resources in the generation stack as people look at winter coming, as people look at the experience, we just had. We think that, that’s going to be attractive. And we’re seeing that in real transactions.

Operator

Thank you. Our next question comes from Spiro Dounis from Credit Suisse.

Spiro Dounis — Credit Suisse — Analyst

Hey, good afternoon, everybody. Steve I asked you about gas macro last time and didn’t think it had to ask you again. But here we are at $5 to $6 gas and so it seems like a lot’s changed since August. So would just love your fresh thoughts on that front, in terms of what do you think is going to take to kind of normalize prices here. To your point, we haven’t really seen that supply response yet. What do you think that’s going to take what our producers telling you they need to see and when and then alternatively can you mentioned that some of the power plants of taking less deliveries because of the higher pricing is demand destruction is something we need to worry about at these price levels.

Steven J. Kean — Chief Executive Officer

Okay, let’s start with, with the first one on the gas macro and I’ll call Tom to fill in on this year. As Kim mentioned, we are starting to see some sequential improvement sequential quarter Q2 to Q3 and there’s been a lot more lively conversation I think with producers, who are bringing some rigs and starting to share some development plans. We’ve had some timing shifts in the Bakken, as Kim mentioned, but generally speaking, I think it’s the case that producers are responding. But again not responding as quickly as they did in the last downturn and as many have reported.You’re seeing the publicly traded producers continue to be exceedingly disciplined about coming back in they’re enjoying the higher prices but not responding as much out of concern about capital discipline. However, I think something on the order of half of the rigs in the Permian now are owned by private players. And so the supply will come back, whichever capital source drives that’s just been coming back a little bit slower. Tom?

Tom Martin — President, Natural Gas Pipelines

I think you covered it well.

Steven J. Kean — Chief Executive Officer

And then on the — that you want to talk about power demand at current pricing?

Tom Martin — President, Natural Gas Pipelines

Yes, I mean we have seen some degradation in power demand due to higher gas prices, but not as much as you would expect and certainly not what we had seen in prior years and a lot of that has to do with coal retirements. And just the need to backfill renewable power on an intermit basis. And so again the slight decrease, but not significant, and we still see, as Steve said power customers wanting to sign up for services to form up there gas or power capabilities on a longer-term basis. I think that all looks good for future.

Spiro Dounis — Credit Suisse — Analyst

Great, that’s helpful color. Second one just maybe getting your latest thoughts around capital spending going forward, kind of, on a multi-year basis. You know, I’ve historically, you guys had talked about $2 billion to $3 billion spending in any given year and then of course with the pandemic and slowdown. I think that fell to sort of $1 billion or less was kind of a new number, but since then we’ve seen the outlook kind of dramatically improve, especially when you consider a lot of the energy transition opportunities in front of you that the Rich mentioned earlier. And so just wondering how do you think about an appropriate level of growth capex or M&A spending. However you want to think about it going forward, that sort of keeps you within your target leverage and also as you to grow the dividend.

Steven J. Kean — Chief Executive Officer

And so when we sort of adjusted the outlook from two to three to something lower. We adjusted it to one to two, and we still think that’s a pretty good estimate and this year we ended up on the expansion capital front under $1 billion as you mentioned. So we were at about $800 million for this year.

And look, this is a function of kind of what kind of activity there is out there, a lot of the — some of the new origination did come in the renewable diesel area and the renewable natural gas area as we talked about earlier, but we continue to have 53% I think of our backlog is for natural gas and so we still think, the one to two is about right. I think it is two points here, one really big mega projects. It’s no secret to anybody. Those are harder to permit and build. But a lot on the other hand, a lot of the growth is on the Texas and Louisiana Gulf Coast, the growth and gas demand that we expect and we’re just starting to hear a little bit more from Permian players about the need for another pipeline. They don’t need right now, but their time frame on when it might be needed out of the Permian, has moved up a bit.

And so those discussions are very advanced, it’s just kind of a function of current prices in both crude and to some extent natural gas. But really huge projects, I think you’re probably not as likely to get done or permitted. And so we think that, one to two is still probably about right. Building off our existing network attractive returns.

Richard D. Kinder — Executive Chairman

And let me just emphasize as Steve said, so many times that we’re going to be very disciplined in this approach to spending capital make certain that these are satisfactory returns and I agree with the kind of range Steve is talking about, but as we’ve explained, we have a lot of uses for our capital and we’re going to be very judicious about how we use it.

Operator

Thank you. Our next question comes from Jeremy Tonet from JP Morgan. You may go ahead sir.

Jeremy Tonet — JP Morgan — Analyst

Hi, good afternoon.

Steven J. Kean — Chief Executive Officer

Good Afternoon.

Jeremy Tonet — JP Morgan — Analyst

Want to touch on carbon capture a bit more here. And just wanted to get your thoughts on how you think this can unfold. And do you think that the hub concept is really needed to kind of move forward efficiently, kind of what the University of Houston and rise in Colombia have discussed in their papers or do you think that standalone projects on carbon capture can move forward by themselves?

Steven J. Kean — Chief Executive Officer

Well we exploring the stand-alone projects. I mean we’re open to discussing other larger opportunities as well and perhaps given that we know how to build, own, operate CO2 pipe perhaps participating in the transport pieces, but again, for all the reasons I said before, I think there’s a lot of wood to chop before we see those bigger projects come through. Jesse anything you want to add there?

Jesse Arenivas — President, CO2 & President, Energy Transition Ventures

No, I agree, I think we stand-alone probably be quicker, as you said, multiple parties detect — some of the other on the hub concept.

Jeremy Tonet — JP Morgan — Analyst

Got it. That’s helpful there. And then as far as it relates to what Kinder could do going forward do you see it mostly just organic growth off your footprint or do you see kind of the two projects that already have commercial banking and are moving forward that are servicing ethanol production in the CO2 off in the upper Midwest is that the type of thing that Kinder could get involved with or just kind of sticking to your own asset base?

Steven J. Kean — Chief Executive Officer

Again on carbon capture here.

Jeremy Tonet — JP Morgan — Analyst

Yes.

Steven J. Kean — Chief Executive Officer

Look at, we’ve looked at some again I just want to emphasize, look I think carbon capture and sequestration if we’re going to be meet climate objectives over the long-term is going to have to be part of the picture and some work is going to have to be done there. But I’m just trying to set the expectations at a rational level of how quickly we think that’s likely to unfold and where we think the first projects get done, and so there is a focus on our existing network, but we have had discussions with people off the network about the potential to capture and sequester carbon, those things are still in early stages, but there are things that we would explore, if the returns were good.

Operator

Thank you. Our next caller is Michael Blum from Wells Fargo. You may go ahead, sir.

Michael Blum — Wells Fargo — Analyst

Thanks, good afternoon, everyone. I wanted to go back to Rich your opening comments, you referenced potentially I think private investors perhaps partnering with you to invest in the business, can you just expand on that comment. Are you sort of suggesting public markets mainly not be there. So you might be looking at other sources of capital?

Richard D. Kinder — Executive Chairman

No, what I’m saying is that we think we are creating real value as we move toward critical mass in our Energy Transition Ventures Group. And at some point, at the time of our choosing when we feel we have critical mass and still have significant growth opportunities, which we think are there in spades then I was saying that we believe and the Board believes that we would have the opportunity to partner with public or private ownership on terms that we think would be very favorable to us. We think this is a platform that deserves and will receive a lot of investment interest, when it gets to be the appropriate time.

Michael Blum — Wells Fargo — Analyst

Okay, got it. Thank you for that. Totally changing gears, wanted to ask a little bit at the EOR business, just given the increase in oil prices. I guess have you been able to lock in higher priced hedges going forward? And are you thinking about that business. Any differently in terms of allocation of capital given the higher prices?

David P. Michels — Vice President and Chief Financial Officer

Yes, we continue to layer on favorable hedges, last quarter we’ve been able to really look at the back end of our hedge profile. So that’s a positive. We are seeing some organic growth within our existing assets as prices increase, so we think that will continue.

Operator

And our next question comes from Tristan Richardson from Truist Securities. You may go ahead, sir.

Tristan Richardson — Truist Securities — Analyst

Hi, good afternoon. Just to follow-up on the gas storage comments — in your commentary there on positive sign of the renewals. Could you just generally frame up for us where contracted capacity is today or relative to nameplate or capacity available today for potential customers that as you say or are waking up to the value proposition of gas storage?

Steven J. Kean — Chief Executive Officer

Yes, You can’t think of it in several buckets. I mean one mentioned that, if we got it under contract. We are looking at a storage expansion opportunity specifically in Texas, we have storage that’s rolling off and renewing every year, we try to keep that fully under contract or pretty fully under contract, as that happens, we’re expecting well, we are seeing and we’re expecting will continue to see those values improve.

But I want to making a further point about the bucketing here really flexible storage, like we have about 30 or 40 Bcf of that in our Texas Intrastate business, Stagecoach is a pretty flexible storage asset as well. That’s where the value is really appreciating the most, if you think about some of our shorter term storage related services like park and loan in a backwardated market, there’s not as much opportunity to park gas for customers and so that shorter term business gives a little more limited, but in the aggregate and in the overall outlook, storage is becoming more valuable in our judgment and that’s what made and we’re seeing that and it’s also what made the acquisition opportunity, which was somewhat fortuitous, but made it attractive to us.

Tristan Richardson — Truist Securities — Analyst

Helpful. Thanks, Steve. And then switching gears a small piece of business. But can you talk a little bit about the bulk business green closer back towards 2019 levels. If you talk about just some of the dynamics we’re seeing with bulk commodity inflation and supply dislocation we see some of this backdrop is as a — tailwind from both business, even on the pricing side or the gas utilization side?

Richard D. Kinder — Executive Chairman

John Schlosser?

John W. Schlosser — President, Terminals

Sure we see most of the growth in the coal area where we were up 40% on the quarter and in the steel area, we were up 38%, which kind of mirrors what you’re seeing from an international standpoint, US production was up 39% and exports were up 45%. So we’ve been following along to that we are back at our Pier IX facility, which is where the predominance of our export business is on the coal back to 2019 levels as we stand today.

Operator

Thank you. Our next caller is Keith Stanley from Wolfe Research. Sir you may go ahead.

Keith Stanley — Wolfe Research — Analyst

Hi, good afternoon. So having closed the Kinetrex steel now, can you just given an update on I guess the opportunities that you see in RNG and whether you think that’d be a significant part of your capital plan over the next several years either through acquisitions and organic growth. And then relatedly, can you just talk to any progress or developments in the voluntary market that you’re seeing as you try to term out rent exposure there?

Steven J. Kean — Chief Executive Officer

Sure. So Kinetrex the three projects, as I believe Kim mentioned that they that came with the deal, if you will, those were all under contract, under EPC contract etc at the time that we closed that’s been kicked off. Those are on track in terms of the opportunity set, there are hundreds of landfill opportunities, but there are other competitive players out there, we think we bring some scale to that business, the returns are attractive. The capital commitment is $25 million to $40 million, essentially per installation.

I guess what I’d say, Keith is. It’s a little early to tell right now. When and how much. Okay, we’re keeping a very close eye on that. There is a lot of interest there is shadow backlog if you will, customer discussions underway on a significant number of additional landfills, but there is work to be done commercially and all of that from here to there, but it’s very economic and we’ve got some scale, we believe, to help commercialize this maybe more quickly than others. So optimistic, but hard to quantify the when — yes the when and the how much right now. The voluntary market we have good real conversations with real counterparties who are interested in buying in the voluntary market that means without the RINs value and without the RIN’s volatility and, but at very nice returns that are, that would be locked in.

And so I think that market is real because of the ESG commitment in the notes zero commitments that people are making their interest in doing using renewable natural gas is strong. And so is the interest of the transport market. I mean, when you think about the technological and economic barriers of electrifying heavy duty trucking, compressed natural gas and even LNG is an attractive alternative that helps some of the big fleet operators meet their climate objectives and do so at attractive prices. And the other thing, I would mention is we sell our RIN’s not quite exactly at the time we generated, but we’ve pretty much sold our RIN’s inventory for the year and as prices that are better than what we have the acquisition model.

Operator

Thank you. Our next caller is [Indecipherable] from Bank of America.

Unidentified Participant — — Analyst

Hey, good afternoon, I guess. So the first question is really around LNG, you’ve got the 2B’s a day coming online for LNG exports over the next 12 or 18 months, we cover surpassing. Could you maybe walk through, kind of, how do you think this is going to impact your transport volumes. And then, if you’re going to get some quarter on the G&P side, I know that you said you have about 50% market share. So should we expect about 50% market share on the incremental 2B’s that come online over the next 12 to 18 months.

Steven J. Kean — Chief Executive Officer

Tom?

Tom Martin — President, Natural Gas Pipelines

Yes, I mean, so we do have incremental projects that we’re serving, we don’t have contracts with both of those facilities that we certainly have a lot of business, which near and as are their capacity grows, we certainly have commitments to grow with them. We do have other projects that we are in active discussions on projects that we believe will be FID. Probably sometime next year and we think we’ll get our share of capability as well then that is in our backlog right now.

Unidentified Participant — — Analyst

Okay, right, and then we’ll follow up just sticking on the LNG theme and kind of thinking about LNG and response resource natural gas. Are you having LNG operators request response resource natural gas as a feedstock. And today is actually response resource natural gas, getting a premium out there in the market to-date?

Tom Martin — President, Natural Gas Pipelines

Yes, the transactions that we’ve done there has been a premium to-date. But I think the interest has really escalated here of late, and the LNG customers are interested in the overall carbon content of their cargos. And that includes methane emissions and what they would tell you and what they’ve told us is sort of we are not their problem. Their problem is just making sure that they have producers who are using the right tech completion techniques etc, but there is interest in that particularly as they’re trying to place cargos in Europe and they’re very focused on it and we are working closely with them to make sure we do our part, but it is a very much a point of interest with our LNG customers.

Operator

Our next caller is Gabe Moreen from Mizuho. You may go ahead, sir.

Gabe Moreen — Mizuho Securities — Analyst

Hey, good afternoon, everyone. I’ll ask one question, everyone wants to get to the Asterisk, but around the $64 billion emissions reductions projects on the Ship Channel. I’m just curious kindly other reason around whether that there new your return on that project. And also, is that something I guess that’s just specific to the HSC or can we take what you’re doing there and apply to some of your other hubs as well as your interest in doing up.

Steven J. Kean — Chief Executive Officer

Kimberly?

Kimberly Allen Dang — President

Yes, I mean it’s a project where we got existing vapor combustion units and we’re replacing those vapor combustion units but they for recovery units. And so there is an economic return. The economic return comes from as we capture that those papers, then we can sell that product.

And then the other vapor recovery unit and is a little less than 10 combustion and so there’s natural gas savings. So there is an economic return associated with the lower cost of running the equipment and with the volumes that we are covering and that gets us to a nice economic return. We have accounted anything in the returns for the emissions reduction. But we aren’t going to get a 72% reduction in the emissions from that facility on this project from this project.

Gabe Moreen — Mizuho Securities — Analyst

And Kimberly, if I could ask a slight fall to that, is the Board started even to sort of put a price on CO2 sort of implicitly when you’re discussing on project?

Kimberly Allen Dang — President

We have not put a price on CO2 when we’re discussing projects. It is a non-quantitative consideration, but the projects need to on a quantitative basis need to clear the hurdle.

Operator

Our next caller is Michael Lapides from Goldman Sachs. You may go ahead, sir.

Michael Lapides — Goldman Sachs — Analyst

Hey, thank you all for taking my questions. I have two, first of all, can you talk a little bit about timing for either the Permian or the Haynesville of when you might think either basin or what your customers are saying about when either basin would need do long haul capacity, that’s question one.

Question two steel prices are through the roof, labor up a good bit, how should we think about if new kind of a larger pipelines are needed for one or two basins. What cost inflation means for kind of potential returns or potential tariff levels?

Steven J. Kean — Chief Executive Officer

Okay. Yes, I mean on the Permian takeaway. We had talked about before is kind of the — being there in kind of 2025 call it and now that’s probably at least based on some conversations with customers maybe moved up a year. Now Michael, I just want to point out need and contract signatures can sometimes be two different things and occurred through different points in time. And so I think it’s going to be, we’ll be having commercial discussions that we’ll see whether the real commitment demand is there, and we’ll see how that plays out really call it over the next year or so.

Tom on the Haynesville in terms of the timing there?

Tom Martin — President, Natural Gas Pipelines

Yes. So, there is one project that is FID that will be in the market in 2023. So that will help relieve some takeaway pressure and then we think there is a need for some expansion projects sometime in the same mid 2025 to 2028 timeframe for additional Bcf or so.

Steven J. Kean — Chief Executive Officer

And then on your question on steel costs and the like. Yes, they have absolutely gone up. We were looking at some information on hot-rolled coil, which is what goes into the pipe mill to make pipeline, so that’s up three times year-over-year. It’s up 90% or some of year-to-date. And, but the thing about it is that there is capacity in the world market. It’s that we’ve got a current dislocation and the view would be and you see to the executive to forward that it starts to come down. But in any case, we’ve been here before in terms of needing to protect us from escalation in steel prices, we’ve included in the past projects, deal trackers, sometimes we needed and sometimes we didn’t.

But the other thing we’re doing really across the board on materials is when we’re evaluating a project for approval, we make sure to ask consistent updated for current equipment, materials and steel prices so that we make sure that we get that priced into the deal. To your real question, don’t think it is an obstacle to getting an additional long haul pipeline.

Operator

Thank you. Our next caller is Colton Bean from Tudor, Pickering, Holt & Company. Sir, you may go ahead.

Colton Bean — Tudor, Pickering, Holt & Company — Analyst

Good afternoon. So just thinking at terminals. I think the release is the Jones Act, the key driver some of the softer margins there. Do you think counterparties exercise need those renewal options or do you expect mostly spot exposure as we look at 2022. And then just a related question, should we expecting it any additional idling to cut opex there?

Steven J. Kean — Chief Executive Officer

Okay, John?

John W. Schlosser — President, Terminals

Yes, we don’t expect any additional idling if we were able to kind of weather the storm through COVID with no impact, it hit us this year like it hit the entire industry. 25% of the capacity of roughly 45 vessels was idled at any given point of this year, we had two that had been idled all year, a rough rule of thumb is $3 million per quarter per vessel. We’ve been able to re-contract. All of the other vessels, as the year gone — has gone on or put them in spot for a short period of time until we were able to get those re-contracted our exposure if you look, kind of, forward into ’22 is about 22% of the fleet days?

Colton Bean — Tudor, Pickering, Holt & Company — Analyst

Great, appreciate an update and then maybe switching gears here just checking on a hydrogen obviously a longer term opportunity, but we seen a number of pilots and I think just this morning at a larger-scale production announcement. So, are you seeing any requests for blending on the transportation network. As we look out a few years?

Steven J. Kean — Chief Executive Officer

Yes. We have a conversations with customers about that it is, as you point out, it’s still a bit of an economic challenge. That doesn’t mean it won’t happen, but it does mean that you have to have something that will cover those economics like the ability to pass it through to a retail customer, utility context or something like that again this is one of those things like CCUS that presumably will be part of the solution over the long-term. But we’re still in the early innings on it right now with pilots and experiments and announcements, but not, we don’t have real concrete commercial activity at this point.

Operator

Thank you. Our next caller is Sunil Sibal from Seaport Global Securities. You may go ahead, sir.

Sunil Sibal — Seaport Global Securities — Analyst

Yes, hi, good afternoon everybody and thanks for taking my question. So my first question was related to a clarification in your opening remarks, I think you mentioned that in the Bakken, the volume pickup has been somewhat slow. Did I hear that correctly? And if so, what in your mind changes the trend. Obviously the commodity strip is fairly strong looking forward?

Steven J. Kean — Chief Executive Officer

Yes. So I think that dynamic is changing in terms of producer plans to continue to add to continue to add wells to our system. They are absolutely doing that in the rigs are running and they are, they are a drilling and get the work done, I think it was just that the connections were a little slow or the wells to be put on line were a little slower than what we had anticipated for the year, but it’s still we think robust growth opportunity for those assets, both on the gas and the crude side.

Sunil Sibal — Seaport Global Securities — Analyst

Got it. So it’s just a matter of time. Now the second question was related to the volatility we have seen in the natural gas, markets and the spreads, etc. I was just curious, you know, has that kind of changed your view on the Ruby Pipeline, obviously some of the contracts that have rolled off and I was curious, if you’re seeing the impact of those spreads widening on that pipeline and how should we think about that asset going forward?

Steven J. Kean — Chief Executive Officer

Yes, not particularly on Ruby from time to time there is some activity there depending on what’s going with the pipelines coming out what’s going on operationally with the pipelines coming down, but no change in our outlook there and no change in our update on if our view on Ruby, which is we are going to make as Kinder Morgan an economic decision for Kinder Morgan shareholders when the debt comes too.

Operator

And, sir, at this time, I am showing no further questions.

Richard D. Kinder — Executive Chairman

Well, thank you. Obviously, everybody wants to get off and watch that baseball game up in Boston. Thank you very much.

Operator

[Operator Closing Remarks]