Kinder Morgan Inc. (KMI) is investing in new gas and energy transition projects as the midstream giant faces headwinds from low commodity prices.

Kinder Morgan placed around $500 million of new projects into the company’s backlog during the second quarter, KMI CEO Steve Kean said during a July 19 conference call with analysts.

After placing about $450 million of projects into service during the second quarter, KMI’s backlog stands at $3.75 billion.

KMI is budgeting approximately 80% of its total project backlog to natural gas and low-carbon investments—including producer-certified natural gas, renewable natural gas (RNG), renewable diesel and feedstocks to produce renewable fuels—KMI President Kim Dang said in the company’s July 19 news release.

The company brought into service the first of its three landfill RNG projects in Indiana during the second quarter. The three Indiana facilities joined KMI’s portfolio through the company’s 2021 acquisition of RNG developer Kinetrex Energy.

KMI’s other two Indiana RNG projects, under construction at the Liberty and Prairie View landfills, are expected to begin commissioning in the third quarter.

“The project was later than planned and a little more expensive, but still a nice return and we expect the whole portfolio of Kinetrex projects to yield a very attractive return on our overall investment, even with the delays we've experienced,” Kean said on the call.

The three projects will add about 3.9 Bcf to KMI’s total RNG capacity.

KMI also continues the permitting and engineering processes required to convert a Michigan landfill gas site into an RNG facility. The project will add another 0.8 Bcf of RNG production capacity when placed into service in the second quarter of 2024.

Also during the quarter, KMI closed a $15 million acquisition of Parallel Petroleum’s interest in the Diamond M Field—located adjacent to the company’s EOR operations in the Permian Basin.

The Diamond M Field is currently under waterflood but is expected to be receptive to CO2 flooding given its proximity to KMI’s existing EOR operations. KMI plans to begin EOR on the asset next year.

KMI is also investing in its natural gas systems, including expanding the working gas storage capacity at its Markham Storage facility in Matagorda County, Texas. The Gulf Coast storage project includes an additional cavern to provide over 6 Bcf of additional storage capacity and 650 MMcf/d of additional withdrawal capacity.

Earlier this month, Kinder Morgan Tejas Pipeline LLC announced plans to expand its Eagle Ford gas transportation system to transport around 2 Bcf/d of Eagle Ford output to Gulf Coast markets. The $251 million project is expected to enter service in the fourth quarter.

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Price headwinds

KMI’s second-quarter revenue and distributable cash flow were down year-over-year as the company faced lower commodity prices.

The company now expects to finish the year slightly below budget due to the weaker price environment.

So far this year, crude oil and natural gas prices have come in below KMI’s full-year 2023 budget assumptions of $85/bbl and $5.50/MMBtu, respectively.

Despite the headwinds, KMI reported natural gas transport volumes were up 5% over the same quarter last year; gas gathering volumes were up 19% over the same period.

Gains in gas gathering volumes were driven by volumes from the gassy Haynesville shale, which increased 29% year-over-year, Dang said on the call. Bakken volumes rose 26%, while Eagle Ford volumes grew by 21%.

KMI expects gathering volumes to be around 16% for the year—approximately 4% below budget.

Some of those declines can be attributed to smaller producers cutting drilling plans as they weather an extended period of low prices, the company said.

“We're not seeing much of a volume decline from our big producers,” Dang said. “Where we're seeing some price sensitivity is on some of our smaller producers, and that's why we still expect that we'll be up 16% for the year.”

Kean plans to step down as CEO at KMI at the beginning of August. Dang will succeed Kean as CEO, though Kean will remain on the company’s board of directors.

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