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Ethanol elevates Kinder Morgan’s Q2

Texas-headquartered pipeline transportation and energy storage company Kinder Morgan Energy Partners (KMEP) has experienced strong financial growth at its terminals and pipelines in Q2, namely due to an increase in ethanol handling.

‘Growth in [the products pipelines] segment compared to the second quarter last year was driven by strong financial performance at our Pacific pipeline and terminal operations, attributable to higher tariffs and an increase in ethanol blending,’ chairman and CEO Richard D. Kinder says.

The products pipelines business produced second quarter segment earnings before DD&A and certain items of $181.1 million (€141 million), up 15% from $157.8 million for the comparable period in 2009, and is expected to meet or exceed its published annual budget of 10% growth.

KMEP’s oil and petrochemicals storage terminals also saw a positive quarter.

‘The Southeast and West Coast terminals, along with the Central Florida Pipeline and Transmix also reported good financial results. We continued to benefit from further increases in ethanol demand, boosted by both a mandate in California last quarter that increased the amount of ethanol blended into petrol from 5.7% to 10% and favourable blending economics. As we noted previously, while the growing use of ethanol as part of the country's fuel supply tends to reduce pipeline volumes, our investments in ethanol storage and blending infrastructure have enabled us to recover those revenues and cash flows.’

In the second quarter, ethanol volumes handled in the products segment increased by 38% to 7.6 million barrels versus Q2 2009.

Year to date, ethanol volumes are up 40% to 14.8 million barrels versus the same period last year.

Revenues for Q2 were up 13.4% attributable primarily to both indexed and certain cost of service pipeline rate filings, as well as the revenue uplift from ethanol storage and blending in California. An additional highlight in the quarter was a nearly 5% increase in volumes at the Southeast Terminals.

Overall petrol volumes including transported ethanol on the Central Florida Pipeline were down 0.7% (excluding Plantation down 3.4%).

Adjusted for the increased ethanol blending in California, overall petrol volumes were up 1.1% (excluding Plantation down 1.%). Diesel volumes were up 4.8% (excluding Plantation up 6%), reflecting increased economic activity on the West Coast. Jet volumes declined 6.9% (excluding Plantation down 2.8%), and NGL volumes were down significantly due to lower volumes on the Cochin pipeline system.

‘Compared to the second quarter last year, this segment's growth was driven by contributions from the Midcontinent Express (MEP) and Kinder Morgan Louisiana pipelines, which came online in August and June of 2009, respectively, and the treating assets that we purchased from Crosstex in October 2009,’ Kinder adds.

The terminals business produced second quarter segment earnings before DD&A and certain items of $159.0 million, up 12% from $142.5 million for the comparable period in 2009, and is expected to meet or be slightly below its published annual budget target of 14 percent growth.

‘Results in the quarter were driven evenly by organic growth and acquisitions,’ Kinder explains. ‘Increased capacity and throughput at Galena Park on the Houston Ship Channel, higher steel volumes across our system and an increase in bulk exports from our Gulf Coast and West Coast terminals accounted for most of our internal growth. We also benefited from the U.S. Development and Slay acquisitions in the first quarter of this year.’

Bulk transload tonnage increased by 27% to 25.2 million tonnes compared to the second quarter of 2009, driven primarily by increased steel volumes. Ethanol handling was up 83% to 14.6 million barrels, and leasable capacity was up 5.6% to 58.2 million barrels due to tank expansions compared to the same period last year.

Combined, KMEP’s terminals and products pipelines business segments handled approximately 45 million barrels of ethanol through the first two quarters, as KMP continues to handle about one out of every three barrels of ethanol used in the US.

KMEPS’s highlights include completion of an approximately $69 million project that added 480,000 barrels of refined products storage capacity at its Carson Terminal in Carson, California.

The company has entered into long-term contracts with customers for all six of the new tanks which are now in service. Additionally, the company plans to invest another $85 million to build seven more tanks with a capacity of 560,000 barrels. Six of the tanks have already been leased and they will be in service in 2013 and 2014.

KMEP has begun construction on an approximately $52 million project to build a new 1.6 mile delivery pipeline, three 150,000 barrel storage tanks and related facilities at the Travis Air Force Base in California. The project is expected to be in service in March of 2012.

Kinder Morgan Southeast Terminals (KMST) has completed the installation of automated ethanol blending facilities at a second petrol terminal in Selma, North Carolina, allowing the company to increase ethanol blending service to the area's conventional petrol market. KMST has ethanol blending capabilities in 12 of the 15 markets it serves and can adjust blending ratios as needed in order to help customers meet changing regulatory requirements.

KMP has entered into a definitive sale and purchase agreement to acquire a terminal with ethanol tanks, a truck rack and additional acreage in Dallas, Texas, from Direct Fuels for approximately $16 million. The facility is connected to one of the unit train terminals that KMP acquired from U.S. Development in January. The transaction is expected to close in July of 2010.

The company has also signed a definitive agreement with a major oil company to support a new ethanol unit train facility at its Deer Park, Texas, terminal and a pipeline connection to its Pasadena, Texas, terminal. The company will invest approximately $15.5 million in the first phase of the project, which is expected to be completed in Q2 2011.

KMP renewed about 4.5 million barrels of tank storage at its terminals in the second quarter with an average contract length of 5.6 years.

It also began constructing 1.15 million barrels of new tank capacity at its Carteret, New Jersey, terminal. The approximately $66.6 million project is expected to be completed in September of 2011.

KMP entered into a new $2 billion three-year unsecured revolving credit facility that will expire in June of 2013. The new facility replaced a $1.85 billion unsecured credit facility that was scheduled to expire in August of 2010.

Borrowing under the new credit facility can be used for general partnership purposes.

KMP owns an interest in or operates approximately 28,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, petrol, crude oil, CO2 and other products, and its terminals store petroleum products and chemicals and handle bulk materials like coal and petroleum coke.




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