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Which Segment Will Drive Kinder Morgan’s 3Q15 Performance?

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Kinder Morgan’s Natural Gas Pipelines segment

Natural Gas Pipelines is Kinder Morgan’s (KMI) largest business segment in terms of EBDA (earnings before depreciation and amortization). In 2Q15, the segment alone accounted for 54% of the company’s total EBDA.

The segment’s 2Q15 EBDA fell by 15% quarter-over-quarter and 3% YoY (year-over-year). Contribution from the Hiland Partners acquisition, completed in February 2015, is expected to support the segment’s 3Q15 EBDA growth. However, this increase might be offset by lower natural gas demand during the milder fall season. Also, the segment’s midstream natural gas assets’ performance is 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 Resource Partners (NGLS), DCP Midstream Partners (DPM), and MarkWest Energy Partners (MWE) are among the midstream companies that have exposure to natural gas prices through their natural gas midstream assets. ETP, NGLS, DPM, and EEP together make up ~19.8% of the Global X MLP ETF (MLPA).

Kinder Morgan’s CO2 segment

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 crude oil prices that began in mid-2014. The segment’s 2Q15 EBDA fell by ~15% quarter-over-quarter and ~28% YoY. The trend might continue in 3Q15 due to low crude oil prices (USO) and weak CO2 demand.

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Kinder Morgan’s Product Pipelines segment

KMI’s Product Pipelines segment was the company’s best-performing segment in 2Q15 in terms of YoY EBDA growth. The segment’s 2Q15 EBDA rose by ~37% YoY. The segment’s earnings might be negatively impacted by lower throughput volumes during 3Q15 as the summer driving season ends. However, the company’s take-or-pay contracts entitle it to receive certain minimum fees regardless of the throughput volumes of natural gas, refined product, crude oil, and NGL transported.

Kinder Morgan’s Terminals segment

KMI’s Terminals segment grew 20% YoY in 2Q15, resulting from acquisitions and expansion projects that have come online recently. Expansion projects might continue to drive the segment’s EBDA in 3Q15.

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