Kinder Morgan

Kinder Morgan's second-quarter adjusted EBITDA was $2.20 billion versus PitchBook consensus of $2.06 billion. Higher oil prices lifted the enhanced oil recovery business, and stronger demand boosted volumes in the natural gas and terminals segments. The backlog declined as projects entered service.

Why it matters: It is important not to extend the variable parts of the business too far forward. Global buyers hunting to replace Middle East supply have bolstered commodity prices and system throughput. Investors should instead be paying attention to the project backlog. Management said the reported backlog decline has been effectively offset by uncommitted projects that have received conditional approval. Kinder Morgan's leverage metrics are still healthy enough to continue executing on potential growth projects as they emerge. The backlog is too deep and demand growth too strong for us to ascribe any material worry to its depletion. Major projects don't begin rolling off until 2028, with smaller ones in the interim.

The bottom line: We maintain our $31 fair value estimate after refreshing our model and improving our full-year outlook. Shares look fairly valued, trading in 3-star territory. Our Narrow Morningstar Economic Moat Rating, Standard Morningstar Capital Allocation Rating, and Medium Morningstar Uncertainty Rating are unchanged.

Correction (July 23, 2026): The headline has been updated to reflect the current quarter's results.

We are maintaining our fair value estimate of $31 per share after updating our model. We increased our full-year expectations, driven primarily by the oil-producing EOR segment, which has benefited from higher oil prices, along with the terminals segment.

Kinder Morgan’s growth is tied to natural gas pipelines. This is generally cost-of-service revenue with limited volume sensitivity. As such, we expect earnings will grow as new projects enter service and rates reset. Intrastate pipelines generally have shorter terms and market-based pricing, enabling higher fee increases as demand rises.

There is also some volume sensitivity in the business through its gathering and processing assets and intrastate pipelines. Kinder also has direct commodity price exposure through the production of oil and gas in its CO2 and enhanced oil recovery operations.

We forecast $8.9 billion EBITDA in 2026 and $9.2 billion EBITDA in 2027.

We assign Kinder Morgan a narrow Morningstar Economic Moat Rating based on the efficient scale of its pipeline and terminal businesses.

The natural gas segment carries significant goodwill from acquisitions made in the early 2010s. Since then, there have been only small purchases, with management preferring to build rather than buy. That strategy shift has led to climbing returns, which we forecast will accelerate.

Higher returns will be driven by natural gas pipelines, which can be built at attractive multiples given their brownfield nature. Earnings from these pipelines are also more stable and sticky as decade-plus cost-of-service agreements secure new builds and capacity expansions. The rest of the company's businesses will likely experience low to no growth as they are largely mature.

The potential headwinds for the natural gas industry—namely, elevated natural gas prices—are unlikely to sink our narrow moat rating. Projects currently under construction are secured by customer commitments, which tend to be utilities that, in turn, are expanding or building new capacity to receive the gas. LNG facilities, which can reduce production if gas prices rise to the point where it doesn’t make sense to produce, will still be on the hook for their fixed-capacity contracts.

Kinder Morgan's natural gas pipelines segment has a narrow moat.

The segment predominantly comprises natural gas transmission pipelines that transport gas inter- and intrastate. It also has natural gas gathering and processing operations at the field level, moving molecules from the well to regional fractionation and market hubs. While G&P operations have no moat, with limited exceptions in the industry, that is not enough to offset the moatiness of the transmission assets.

We believe that natural gas transmission is an inherently moaty activity, benefiting from contractual structures and cost-of-service agreements regulated by the Federal Energy Regulatory Commission. Earnings face some volume exposure, but the vast majority comes from take-or-pay capacity reservation fees. Regardless of actual gas demand, customers pay this fee.

Kinder has significant intrastate assets in Texas that connect Permian gas to in-state demand and interstate pipelines. This is about one-fourth of the segment, and contracts are largely take-or-pay market-based pricing rather than regulated cost of service. Robust demand has likely pushed rates up and will likely reset lower as new capacity enters the market.

However, Kinder Morgan has extended contract terms from around five years to seven to 10 years. This improvement means many contracts will reset ahead of a booming LNG industry set to expand significantly in 2027-29, making counterparties in Texas eager to establish fixed-capacity agreements. Growing natural gas production and demand make these assets moaty, with contracts smoothing out the bumps over the long term.

The products pipelines segment earns a wide moat.

Refined products and crude have become increasingly moaty in recent years. With refining growth slowing, there has been little appetite for new major capacity expansions. Kinder Morgan’s assets are wide-moat because they focus on delivering refined products to consumers. Refined products are principally motor gasoline, followed by distillate fuel and jet fuel. Excess profits are being earned, but consistently low-single-digit volume growth means there is no path to disrupt the relationship meaningfully. Incremental pipeline additions can meet the refiner's incremental capacity additions.

The segment also moves crude oil over comparably shorter distances and it is not protected by regulation or strong contracts. Even so, we do not see the no-moat activity as eroding the segment’s wide moat.

The terminals segment earns a narrow moat.

This segment operates local distribution facilities that receive and deliver refined products and materials. Liquids terminals handle refined products such as gasoline. Bulk terminals handle a wider range of industrial goods, including dry refined products, metals, and ores. Kinder Morgan also operates Jones Act-compliant tankers that move refined products and crude between US ports. We consider the liquids terminals and tanker operations underpinning the moat, while bulk terminals have no moat.

The carbon dioxide segment earns no moat.

Unlike the rest of the business, we use our oil and gas producer framework for the segment. Producers can only earn a moat through access to cost-advantaged resources, which we do not observe. The primary source of revenue is its working interests and royalties from several oil and gas fields in Texas.

The segment's next-largest revenue source is the distribution of CO2 gas to oilfield operators, which use it to enhance oil recovery in older wells. Kinder Morgan also has a collection of renewable natural gas, liquefied natural gas, and gas-to-electricity generation.

Natural gas demand will grow, and Kinder Morgan has many opportunities to deploy capital, given its substantial footprint.

Return of capital to shareholders is constrained by large capital investments in the near term but could increase once growth investment slows.

Despite volatile natural gas prices, natural gas transmission is cost of service, offering a more stable way for investors to benefit from growing energy demand.

Natural gas pipelines are being built at a record pace, risking overcapacity if demand growth slows.

Low dividend growth could hurt share prices if interest rates remain high and investors seek yield elsewhere.

Kinder Morgan's refined products pipelines face competitive threats that it cannot fully manage without substantially more investment.