Kinder Morgan Energy Partners LP made several moves in 2011 and early this year to expand its presence in the terminals business, including terminals designed to move coal into both river-served domestic markets and ocean-accessible export markets.
The company did two deals last year to capitalize on increasing demand for both coal export activity and domestic coal use at the International Marine Terminals facility (IMT). IMT is a multi-product, import-export facility located in Port Sulphur, La., on the Lower Mississippi River and is two-thirds owned by Kinder Morgan, the company noted in its Feb. 21 annual Form 10-K report.
“In February 2011, we entered into a 15-year services agreement with Massey Coal, a division of Alpha Natural Resources, to handle up to six million tons of coal annually,” said the Form 10-K. “The majority of the coal that will pass through IMT will originate from Massey’s Central Appalachia mines, be transported to IMT by river barges, and then offloaded and stored before being loaded onto ocean vessels for export to foreign markets. We anticipate a minimum throughput tonnage increase of four million tons per year related to this agreement.”
In June 2011, after this deal was reached, Alpha Natural Resources (NYSE:ANR) took over Massey Energy and its Massey Coal Sales subsidiary.
The Form 10-K added: “Secondly, in October 2011, we entered into a long-term agreement with Progress Energy Florida to handle up to four million tons of coal per year at IMT. This agreement will commence in early 2013, and provides Progress Energy with options to extend the agreement for up to 20 years. Together, we and our remaining one-third partner at IMT are investing approximately $114 million to expand and upgrade the facility to enable it to handle the incremental coal volumes related to these two agreements. We expect the terminal upgrades to be completed by mid-2013.”
In March 2011, Kinder Morgan entered into an agreement with an unidentified large western coal producer to handle up to 2.2 million tons of Colorado coal annually at the Houston, Tex., bulk terminal facility located on the Houston Ship Channel. Unit trains will transport bituminous coal from Colorado mines to the Houston facility, where the coal will be offloaded and stored before being loaded onto ocean vessels. Kinder Morgan also announced an approximate $18m investment to increase the facility’s coal handling capability by adding rail and conveying equipment, and outbound equipment needed to load coal onto ships. “We began handling coal for this new contract in July 2011, marking the first time that western coal was exported from the Port of Houston,” the Form 10-K added.
On Jan. 24, Kinder Morgan announced plans to invest an additional $140m to further expand its coal handling export facilities along the Gulf Coast. Concurrently, Arch Coal (NYSE:ACI) signed a long-term throughput agreement that will help support this expansion, which Kinder Morgan anticipates to complete in the second quarter of 2014. Upon completion of the proposed terminal upgrades, and subject to certain rail service agreements, Arch will ship coal at guaranteed minimum volume levels through Kinder Morgan-owned terminal facilities.
“In addition, we and Arch are in final discussions to include, in the throughput agreement, port space for coal shipments at our coal export facilities located on the East Coast and at our IMT facility, which when combined with our Gulf Coast expansions, will provide incremental port capacity for Arch’s growing seaborne coal volumes,” the Form 10-K added. “We are also extending certain existing long-term coal handling agreements with Arch at our coal facilities located in the state of Illinois.”
Kinder Morgan’s terminals business segment consists of approximately 115 owned or operated liquids and bulk terminal facilities and approximately 35 rail transloading and materials handling facilities located throughout the U.S. and portions of Canada. The company owns or operates approximately 90 dry-bulk terminals in the U.S. and Canada, and combined, its dry-bulk and material transloading facilities handled about 100.6 million tons of coal, petroleum coke, fertilizers, steel, ores and other dry-bulk materials in 2011.
A 2011 increase in earnings from the terminals included in the Mid-Atlantic region was driven by an $18.1m increase from the Pier IX terminal, located in Newport News, Va. Pier IX benefitted from a $21.1m increase in operating revenues that related chiefly to a 5.2 million ton (74%) increase in coal transload volumes. The increase in volumes was due to the ongoing domestic economic recovery, growth in the export market (due to greater foreign demand for both U.S. metallurgical and steam coal), and completed terminal expansions since the end of 2010, the Form 10-K noted. Including all terminals, coal volumes handled increased by 20% in 2011 compared to 2010.