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Which Segment Will Drive Kinder Morgan’s 2Q15 Performance?

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Natural Gas Pipelines segment

Natural Gas Pipelines is Kinder Morgan’s (KMI) largest business segment in terms of EBDA (earnings before depreciation and amortization) before certain items the business segments can’t control. In 1Q15, the segment alone accounted for 57% of the company’s total EBDA.

Natural Gas Pipelines’ 1Q15 EBDA increased by 3% quarter-over-quarter and 1% year-over-year. The contribution from the Hiland Partners acquisition that was completed in February 2015 is expected to support the segment’s 2Q15 EBDA growth. However, this increase might be offset by lower natural gas demand during warmer weather quarters. Also, the segment’s natural gas midstream assets are linked to natural gas prices (UNG), which are expected to stay low for the rest of 2015.

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Energy Transfer Partners (ETP), Targa Resources Partners (NGLS), DCP Midstream Partners (DPM), MarkWest Energy Partners (MWE), and Crestwood Midstream Partners (CMLP) are among the midstream companies that have exposure to natural gas prices through their natural gas midstream assets. ETP, NGLS, DPM, MWE, and CMLP together make up ~24.0% of the Alerian MLP ETF (AMLP).

CO2

KMI’s CO2 segment, which is involved in CO2-based enhanced crude oil recovery, CO2 sales, and transportation, was most affected by the slump in energy prices since mid-2014. The segment’s 1Q15 EBDA fell by ~24% quarter-over-quarter and ~23% year-over-year. The trend might continue in 2Q15 due to low crude oil prices (USO) and weak CO2 demand.

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Product Pipelines

KMI’s Product Pipelines was its best performing segment in 1Q15 in terms of year-over-year EBDA growth, which increased by ~20%. The segment’s earnings might continue to grow with an increase in refined products throughput volumes resulting from both strong demand pull and supply push. However, NGLs (natural gas liquids) demand might fall during a warmer second quarter.

Terminals

KMI’s Terminals segment grew 16% year-over-year in 1Q15 as a result of acquisitions and expansion projects that recently came online. Expansion projects might continue to drive the segment’s EBDA in 2Q15.

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