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Kinder Morgan KMI has jumped 52.7% in a year, surpassing the 33.5% gain of the industry’s composite stocks. The company’s resilient business model, backed by its take-or-pay contracts, may be the primary driving factor.
One-Year Price Chart
Image Source: Zacks Investment Research
The key question now: Should investors chase the momentum? To make a well-informed decision, it is crucial to first analyze the fundamental strengths and weaknesses of this leading energy infrastructure company.
KMI’s Majority Earnings Come From Take-or-Pay Contracts
Kinder Morgan operates an extensive network of pipelines spanning 79,000 miles, transporting natural gas, gasoline, crude oil and carbon dioxide. In addition, the company owns 139 terminals that store a variety of products, including renewable fuels, petroleum products, chemicals and vegetable oils.
As a leading midstream service provider, Kinder Morgan’s pipeline and storage assets are secured under long-term take-or-pay contracts, generating almost two-thirds of its EBITDA. These contracts ensure that shippers pay for the capacity reserved, whether they utilize it or not, which provides a steady stream of cash flows. This structure allows Kinder Morgan to generate stable earnings, primarily insulated from fluctuations in the volume of natural gas transported, offering significant stability to its bottom line.
KMI also noted in its first-quarter 2025 transcript that it generates nearly 30% of its EBITDA from fee-based revenues, adding another layer of resilience to its business model.
Like KMI, the business models of other midstream giants like Enterprise Products Partners LP EPD and Enbridge Inc. ENB are backed by stable fee-based revenues.
Enterprise Products, a top-tier North American midstream service provider, boasts a vast and diversified asset portfolio, which includes more than 50,000 miles of pipelines and a storage capacity of 300 million barrels. Shippers utilize these assets in long-term contracts to transport and store natural gas liquids, crude oil, refined products and petrochemicals. The partnership also has 14 billion cubic feet of natural gas storage capacity, securing stable fee-based revenues.
EPD is set to generate additional fee-based earnings from $7.6 billion worth of major capital projects either currently in service or under construction. These project backlogs will not only secure stable cash flows but also generate handsome returns for unitholders.
Similarly, Enbridge benefits from the long-term, fee-based nature of its midstream operations. Its pipelines transport 20% of the total natural gas consumed in the United States. The company generates stable, fee-based revenues from these midstream assets, as they are booked by shippers on a long-term basis, minimizing commodity price volatility and volume risks.
