Pipeline operator Kinder Morgan Energy Partners LP (KMP) is planning to invest roughly $58 million for the expansion of its chemical storage capacity. As part of the arrangement, the partnership has inked a long-term deal with Canadian chemical producer Methanex Corporation (MEOH).
Per the agreement, Methanex will support the building of a methanol storage capacity close to Kinder Morgan’s liquids terminal in Geismar, La. The partnership will be the operator, owner and constructor of the storage tanks and related infrastructure. Kinder Morgan will also make an improvement of its existing dock at the Geismar Liquids Terminal (GLT).
The terminal storage facility will provide marine, rail and truck access to a methanol production plant of Methanex, which will be shifted from Chile, South America to Geismar. The terminal infrastructure is expected to start operation by the second half of 2014. The relocated methanol production plant is also anticipated to be in service by that time.
Kinder Morgan is the largest independent owner and operator of petroleum product pipelines in the U.S. It is one of the largest publicly traded master limited partnerships (MLPs) and generally serves as a benchmark for the pipeline MLP group.
A focus on fee-based and diversified businesses has enabled the partnership to spread its business risks. In addition, the CO2 business is a major growth avenue for the partnership with the commodity price risk being offset by a long-term hedging strategy.
However, Kinder Morgan’s distribution growth prospects are closely linked to the successful completion of the organic growth projects, which in turn might be adversely affected by operational hindrance, cost inflation and overruns, and delays in completion.
Kinder Morgan currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Two firms in the energy sector that are expected to significantly outperform the equity markets in the next one to three months are Calumet Specialty Products Partners LP (CLMT) and Range Resources Corporation (RRC). Both of these stocks carry a Zacks Rank #1 (Strong Buy).
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