Kinder Morgan (NYSE:KMI) has invested $5.8 billion since 2018 to expand its energy infrastructure empire by building new pipelines and related assets. Those new investments have helped offset headwinds like asset sales, lower energy prices, and contract expirations, enabling the company to generate relatively steady cash flow in recent years despite all the turmoil in the energy market.

However, the company only has $1.5 billion of remaining capital projects in its backlog and few expansion options in development because of the oil industry's current headwinds. In short, Kinder Morgan needs to switch fuel sources if it wants to restart its growth engine. That pivot was one of the topics the company covered at its annual investor day. Here's a look at what the company expects will fuel its future growth.

Fuel gauge with warning indicating low fuel tank.

Image source: Getty Images.

Time to go shopping

Kinder Morgan is facing significant headwinds to expand its existing pipeline network. A combination of lower oil prices and the energy transition to renewable energy has reduced the need for new fossil fuel infrastructure like pipelines. Meanwhile, the industry will likely face a tougher regulatory environment under the Biden administration, which has already canceled a permit for the controversial Keystone XL pipeline. Given these headwinds, "it's going to get harder and harder to build a new pipeline," stated Tom Martin, the president of the company's natural gas pipeline segment, at the investor day. 

The company is likely to switch from building new infrastructure to buying existing assets. Kinder Morgan noted that last year utility Dominion (NYSE:D) opted to sell nearly all its gas infrastructure in a $9.7 billion deal. That transaction could lead other utilities to unload their gas assets. "At the right price," stated company President Kim Dang, "then it's something we're absolutely willing to pursue." That's because "we think the natural gas business has a very long runway" since it's a cleaner fuel that can help reduce emissions and bridge the gap to emerging emissions-free alternatives. 

The company also floated the idea of acquiring renewable energy assets. However, it cautioned that they are "very expensive" at the moment given red-hot investor interest. That reduces the likelihood that the company will find a good deal. Still, Kinder Morgan "will look" as it won't "let that stone go unturned."

Targeted conversion

Kinder Morgan also plans to find new ways to utilize its existing assets as the energy market transitions to cleaner fuel sources. In the near-term, that could include converting crude oil pipelines to gas service. The company could use underutilized assets that it owns or acquires and convert them to gas when the industry needs more capacity. It will likely be easier to convert an existing asset than develop a greenfield pipeline project given the regulatory environment.

Kinder Morgan will also look at converting some of its refined products and terminal infrastructure to support liquid biofuels like ethanol, biodiesel, and renewable diesel. It's already handling some of these volumes, and it's evaluating multiple opportunities to establish hubs for these renewable fuel products.

Meanwhile, Kinder Morgan believes its pipelines are well positioned to transport the fuels of the future: renewable natural gas and hydrogen. Renewable natural gas -- methane produced at landfills and farms -- is interchangeable with conventional natural gas, meaning the company can easily transport it on existing pipelines. Likewise, a 5% to 10% hydrogen blend with natural gas can also easily move on existing pipelines. Thus, "existing gas infrastructure is a valuable asset with significant storage capacity that can be repurposed over time to deliver large volumes of biomethane or, with modifications, low-carbon hydrogen," according to the International Energy Administration.

The green hydrogen opportunity could be massive for Kinder Morgan, given its dominant existing gas footprint. That's because the fuel is one-third as energy-dense as natural gas. Thus, it may require three times the capacity to transport an equivalent amount of this emissions-free fuel than natural gas, potentially opening the door for Kinder Morgan to leverage its current network and capture future growth opportunities. Pipelines will be the most efficient way to transport hydrogen. The industry can move larger quantities at 10 to 20 times cheaper rates than by converting it to electricity and carrying the power on transmission lines that lose energy as it travels distances.

A successful transition could pay big dividends

As Kinder Morgan tuns out of expansion projects. it appears likely to turn its attention to acquiring assets. These future additions will help grow its cash flow in the near-term while providing additional future conversion options as the energy market slowly transitions to cleaner sources like renewable fuels and green hydrogen. If Kinder Morgan is successful, it could refuel its growth engine, giving it the power to continue increasing its 7.5%-yielding dividend in the years to come.