DEFA14A: Kinder Morgan Urges Stockholders to Vote Against Greenhouse Gas Emission Reduction Target Proposal

Kinder Morgan is asking stockholders to vote against a proposal to establish a greenhouse gas emission reduction target, citing concerns about cost, operational feasibility, and potential risks to stockholder value.

Summary

• Kinder Morgan is urging its stockholders to vote against Item 5, a stockholder proposal related to establishing a greenhouse gas (GHG) emission reduction target.
• The company believes that setting and implementing GHG reduction targets may lead to costly and uneconomic actions that could interfere with its ordinary business operations.
• Kinder Morgan argues that achieving such targets would rely on factors outside of its control and could be value-destructive for stockholders.
• The company's Scope 1 and 2 emissions primarily come from combustion emissions (61%), vented and fugitive emissions (16%), and purchased electricity (17%).
• Replacing gas-fired compressors with electric compressors, a potential solution, could cost in excess of $20 billion.
• Kinder Morgan has a methane emission intensity target of 0.31% for its natural gas transmission and storage operations by 2025 as part of the ONE Future Coalition.
• The company is evaluating the feasibility of using electric or dual-drive compressors on expansion projects and when replacing existing compressors.
• Kinder Morgan believes that committing to a specific rate of gas-to-electric conversions would not be prudent due to operational complexities and risks.
• The company highlights its efforts to facilitate the energy evolution, including responsibly sourced natural gas and carbon sequestration projects.
• Kinder Morgan has reduced methane emissions by 30% from 2020 to 2022 while increasing throughput.
• The company's methane intensity has ranged from 0.03% to 0.04% over the last three years, below the ONE Future target.
• Kinder Morgan conducts annual scenario analysis to assess its strategy under different climate scenarios and has a working group focused on identifying GHG emission reduction opportunities.

Sentiment

Score: 5

Explanation: The document presents a balanced view, acknowledging the importance of GHG emission reduction while highlighting the challenges and costs associated with setting specific targets. The sentiment is neutral, focusing on the company's perspective and rationale.

Positives

• Kinder Morgan has already established a methane emission intensity target and is actively working to reduce methane emissions.
• The company has reduced methane emissions by 30% from 2020 to 2022.
• Kinder Morgan is involved in initiatives to improve methane emissions measurement and has a carbon sequestration project under development.
• The company has surpassed its annual short-term methane related GHG emission mitigation and avoidance target for each of its last three reported years, resulting in over 10 million metric tons of avoided CO2e emissions.

Negatives

• Kinder Morgan believes setting GHG reduction targets may lead to costly and uneconomic actions.
• The company argues that achieving such targets would rely on factors outside of its control.
• Replacing gas-fired compressors with electric compressors could cost over $20 billion.
• Electrification of compressors could pose reliability concerns due to potential power outages.

Risks

• Setting and implementing GHG reduction targets may result in KMI undertaking highly prescriptive, costly and uneconomic actions that may interfere with our ordinary business operations.
• There are a number of other variables that would require us to be reliant on factors outside of our control to reach such targets.
• The use of electric compressors powered by an electric grid could pose serious reliability concerns, particularly in many areas of the country where our pipelines exist that are rural, and/or have undersupplied power grids.
• Electric compressors would cease to operate during an electric power outage, resulting in an interruption of natural gas supply to utilities, impacting their ability to produce electricity, among many other customer and end-user interruption concerns.
• The electricity grid faces increasing pressure from energy-intensive artificial intelligence infrastructure, data centers, cryptocurrency mining operations and electric vehicle penetration.

Future Outlook

Kinder Morgan will continue to evaluate the feasibility of setting GHG reduction targets and electrifying compressor stations, but will only adopt targets when they have a reasonable basis to determine that they can be achieved.

Management Comments

• We are committed to continuing to evaluate the feasibility of setting targets going forward.
• As we have done with other targets, such as our methane targets, we will adopt targets when we have a reasonable basis to determine that they can be achieved.
• We are committed to managing our business responsibly and in the interests of long-term stockholder value.

Industry Context

The document discusses Kinder Morgan's position relative to its peers in the midstream industry regarding GHG emission reduction targets and methane reduction targets. It also highlights the company's efforts to facilitate the energy evolution through responsibly sourced natural gas and carbon sequestration projects.

Comparison to Industry Standards

• Approximately half of Kinder Morgan's direct competitors (midstream companies that operate pipelines, storage and associated infrastructure) have established GHG reduction targets.
• Approximately the same proportion of Kinder Morgan's proxy peers currently have a methane reduction target in place.
• Kinder Morgan believes its ESG disclosure is more detailed and advanced than current industry standards.

Stakeholder Impact

• Stockholders: The company is seeking their support to vote against the GHG emission reduction target proposal, arguing it could impact long-term stockholder value.
• Customers: Reliability of natural gas supply could be impacted by the electrification of compressors due to potential power outages.
• Employees: The company's approach to GHG emission reduction could impact future projects and operational decisions.

Next Steps

• Stockholder vote on Item 5 regarding the greenhouse gas emission reduction target proposal.
• Continued evaluation of the feasibility of setting GHG reduction targets and electrifying compressor stations.
• Ongoing engagement with stockholders on climate and ESG topics.

Key Dates

Keywords

greenhouse gas emissions, methane emissions, emission reduction target, electric compression, carbon sequestration, Kinder Morgan, ESG, ONE Future, natural gas, pipelines