muhammet sager
Kinder Morgan (NYSE:KMI) is guiding to a strong performance in 2023, a somewhat surprising development given our perspective on the year ahead. In our company model, East Daley is well under KMI’s outlook for 2023.
KMI released guidance for 2023 last Thursday (Dec. 8). The company expects EBDA of $8.2 billion, ~7% above East Daley’s current forecast of $7.65 billion in our KMI Blueprint. KMI attributes the gains to demand for gas transport and storage services, tariff escalations on liquids pipelines, G&P and products growth, as well as Jones Act tanker recontacting.
East Daley’s models build companies from the bottom up by asset-level volumes and rates, allowing users to understand a midstream company as complex as KMI. Based on the new guidance provided by the company, we’re trying to understand the gap in our outlook for 2023.
For example, East Daley models tariff escalations at 12% on liquids pipelines in our KMI Blueprint, when the maximum increase allowed is currently 13.5%. If we raise these tariffs up to the maximum ceiling, it would move up our 2023 EBDA forecast by $5 million.
We also assume flat rates for KMI from the recontacting of Jones Act tankers. Were KMI to obtain higher rates for the tankers in line with the 2019 average, EBDA in 2023 would increase by $30 million in our model.
Looking at commodity prices, KMI assumes $85/bbl WTI prices in 2023, while the current forward strip sits at $79. Increasing our WTI assumption to $85 would increase 2023 EBDA by $28 million. Lastly, East Daley assumes refined products demand stays below 2019 levels due to recession fears and higher prices in California. Even if we add up all these rosier assumptions, we struggle to arrive at the $8.2 billion guidance provided by KMI.
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