All right. Let's kick off here with Kinder Morgan. We have got President, Kimberly Tang here. So very appreciative of you coming along. For those of you who don't know Kinder, am sure you all do.
They move about 40% of the natural gas in this country. They are the largest independent transporter of petroleum products, the largest transporter of CO2 and the largest independent terminal operator. So that's a lot of largest there. So really looking forward to your comments. Kim, off to you.
Thank you. So we thought we'd start today with an overview, very big picture. Can you give me control over the sides? Okay. There we go.
So this is a very high level look at global energy demand. And so this is a 2018 IEA World Energy Outlook. And you can see what it shows is that natural gas and petroleum demand grows for years to come. If you look on the right hand side of the screen, you can see where that growth is coming from, primarily from the developing economies. India demand is projected to more than double during this time frame.
China is projected to be the world's largest consumer of oil and the largest importer of natural gas and oil. And yet still by 02/1930, you saw six fifty million people that lack access to electricity. So the population growth and the urbanization and economic development in these developing economies are creating a demand for these resources. Now where is that supply going to come from? A lot of it's going to come from The U.
S. If you look, The U. S. Is expected to account for over 50% of the increase in global supply from 2017 to 2025. So reserves in The U.
S. Have continued to increase. They basically have doubled from the level of reserves that we had ten years ago. And by 2025, they project that one fifth of the world's every barrel of oil and one fourth of every cubic metric meter of gas is going to come from The U. S.
So the opportunity here is to connect The U. S. Growing supplies into the growing demand in the world markets. And the good news is, we're in a great position to do that. We have an unparalleled and irreplaceable footprint that we've built over two decades.
If you we are the largest we have the largest natural gas transmission network in America. We've got over 70,000 miles of pipeline. We're the largest independent transporter of refined products. We transport over 1,700,000 barrels a day. We're the largest independent terminal operator.
We've got 157 terminals, and we're the largest transporter of CO2. Our strategy is pretty simple. We want to focus on stable fee based assets that are core to the energy infrastructure. We want to be a safe and efficient operator. As we contract these assets, we focus on getting multiyear term on these contracts and getting either take or pay or fee based.
So if you look at our current portfolio right now, over 90% of our cash flows come from take or pay or fee based assets. And we're focused on maintaining financial flexibility. Our 2019 budgeted adjusted net debt to EBITDA is 4.5 times. We had recent upgradings, and so we're rated mid BBB. We've got and we've got sufficient liquidity.
Essentially, right now, we're undrawn on our revolver. Are a very disciplined allocator of capital. We have very high target return thresholds. We're conservative in terms of when we model these, what we're willing to assume on the terminal value. And then our goal through all of this is to enhance shareholder value.
And we do that by investing in attractive projects, by providing a nice attractive dividend that is growing and with excess cash flow repurchasing shares. We believe that KMI should be a core energy holding. If you look, we've got a $40,000,000,000 market capitalization. We are one of the 10 largest energy companies in the S and P 500. We've got investment grade rated debt.
We've got $7,800,000,000 in adjusted EBITDA. We've got 25% dividend growth in 2019 and then another 25% based on our expected dividend in 2020. We've got a $2,000,000,000 share buyback program, of which we've already executed about $525,000,000 We generate enormous cash flow. If you look over the last three years, we have generated almost $10,000,000,000 of cash flow in excess of dividends. And you can see that 2016, 2017 and 2018 when you look at the gray bars.
For those of you who prefer a GAAP metric, and this is not an apples to apples metric by any means, but if you look at cash flow from operations over that same time frame, we've generated approximately $10,500,000,000 of cash flow from operations. In 2019, we're increasing the dividend. So you can see the red bar goes from 1,800,000,000.0 to $2,300,000,000 But yet still, we've got $2,700,000,000 of excess cash flow in order to deliver value to our shareholders. And our dividend coverage, based on the dollar dividend that we have communicated, is 2.2x, so healthy dividend coverage. So what do we do with the cash flow that we generate in excess of our dividend?
We have essentially, we have four choices: pay down debt pay the dividend or increase the dividend invest in capital projects or repurchase shares. On the balance sheet, we have now achieved our long term target of 4.5 times. And so we are essentially done there. On the dividend, we've communicated what we expect the dividend to be in 2019 and 2020. So we don't have any near term decisions with respect to the dividend.
So for the next two years, it really comes down to capital projects versus share repurchase. So let me talk a minute about how we think about the trade offs between those two. On the capital projects, we target a threshold well in excess of our cost of capital. Right now, we target around a 15% unlevered after tax return, okay? Now if we have projects that have take or pay contracts for that are long term in nature from creditworthy counterparties, then it obviously takes something less a little bit less than that.
If you've got if it's a CO2 project where you have some commodity or volume risk, then it's going to we're going to require a higher return on those projects. But just to kind of put things in the ballpark, 15% unlevered after tax on average. So if you look at that return and you compare that return to what we could achieve on share repurchase, when you're repurchasing shares, that's a levered return, right, because you're buying equity cash flows. So you have to take the 15, which is an unlevered on the projects and convert that into a levered return. And that levered return at 4.5 times leverage, depending on how the cash flows fall out, it was going to be 25% or better, so 25% to 30% on a levered basis.
We think that, that is significantly in excess of what we could achieve on share repurchase that to the extent that we can find projects that meet those return thresholds that, that is going to get the priority for our cash flow. Now we don't expect we don't require that the share repurchase return be equivalent to the what we can earn on capital projects because when we purchase shares in a company, you're purchasing diversified cash flows versus a project has single project risk. So we expect that the capital project will return more than share repurchase, but it returns the gap is sufficiently wide based on the numbers that we run that we think capital projects get the priority at the return thresholds that we've targeted. To the extent that we have cash flow in excess of those capital projects, then we will use that to repurchase shares. And this is something that we constantly reevaluate.
So this isn't something that we set one day and we move with that for the next five years. We're constantly reevaluating that based on share prices and other assumptions that we use to run those numbers. Now let me point out some people have said, well, what if you can't find enough capital projects? If we can't find enough capital projects, then we'll do share repurchase, and that will bring value to our shareholders. Right now, our stock is trading at a 9.8 times EBITDA multiple.
That is going to generate value to our shareholders, not the same value that a project will at the returns that we target, but it will generate nice value. I want to spend a minute and focus on natural gas, and U. S. Natural gas. And that's important because over 50% of our cash flow comes from our natural gas segment, and we move over 40% of the natural gas consumed in The United States.
So if you look at the right hand side of this chart in terms of U. S. Natural gas demand, it's expected to grow from about 90 Bcf a day in 2018 to 119 Bcf a day in 02/1930. So 29 Bcf a day growth in natural gas demand over that time frame. The largest growth is coming from LNG exports, which is about 14 Bcf a day.
And then power and industrial load are the next two highest with four Bcf each. Now where which basins is that is the supply going to come from to meet that natural gas demand? And you look and there are four primary basins in The U. S. That are going to provide that incremental supply, the Marcellus, Utica, the Permian, the Haynesville and the Eagle Ford.
If you look at the other U. S. Basins, they're actually expected to decline over that time frame. So we have four key basins in The U. S.
And three of those basins are in the Gulf Coast. So these a lot of the supply growth and a lot of the demand growth is concentrated on the Gulf Coast. You can see the LNG export demand is concentrated in the Gulf Coast, the industrial demand, the exports to Mexico. And that works well for us because that's where we've got a significant asset position and an unregulated primarily unregulated position in that market area. Right now, our backlog of projects is about $5,700,000,000 with 3,900,000,000.0 of that being in the natural gas segment.
And that's why I focused on the natural gas segment here because that's key to our future growth. If you look at the EBITDA multiple that we expect to achieve on the $3,900,000,000 of the backlog that's in natural gas, we expect to achieve a 5.4 times EBITDA multiple. And beyond the backlog, and I'll talk about that some of the opportunities there in a minute, but we think year in and year out, we can invest between 2,000,000,000 and $3,000,000,000 in projects. And one of the things that gives us confidence of that, and you can go and look at a slide from our investor conferences, over roughly the last ten years, we've invested about $2,500,000,000 on average per year. Now I want to talk a minute about two of our largest projects.
Our two of our largest projects are on the natural gas side, Gulf Coast Express and the Permian Highway. Both of those projects are to take natural gas supply out of the Permian to the Texas Gulf Coast. Each of those pipes is about two Bcf a day. Gulf Coast Express comes online in 2019. Permian Highway comes online in 2020.
So in the next two years, we're going to have incremental four Bcf a day of gas hitting our Texas intrastate system. And that is going to provide opportunities beyond what we have in the backlog because there will be bottlenecks there. There will be new industrial demand that we will need to move that natural gas around on our system. And so we think that will drive over the long term opportunities in the market area. Now turning to the liquids side of the business.
Now the growth in the liquids side of the business is not as significant as the natural gas growth. But we still have some nice growth on the liquids side. Similar to what's happening in natural gas, you've got a lot of supply coming out of The U. S. And the demand is in the rest of the world.
So it also lends itself to an export opportunity. You've got a lot of crude growing crude production, as I talked about, in The U. S. The other thing that you have is you've got some of the highest the best refining capacity in the world sits on The U. S.
Gulf Coast. And that refining capacity is being expanded. You probably saw ExxonMobil just announced 250,000 barrel expansion to their refinery on the Gulf Coast. And so The U. S.
Is going to be a significant player in meeting the world demand on the liquids side. And here too on the refined products side, we've got a very significant position on The U. S. Gulf Coast. We've got the largest independent refined products terminal in The U.
S. That sits in the Houston Ship Channel. We've got 43,000,000 barrels of total capacity. Right now, we handle about 15% of The U. S.
Exports of clean product. And the connectivity that we have in this facility is really unmatched and largely irreplaceable at any reasonable cost. We've got significant inbound pipelines. We've got 20 inbound pipelines, 15 outbound pipelines. We've got cross channel pipelines that connect us to refineries, barge docks, ship docks.
And so we've got a very significant position on the Houston Ship Channel. So now looking beyond the backlog. So we talked about the 5,700,000,000.0 What opportunities are there beyond the backlog? Well, you've got as I showed you, you've got the four growing basins. You've got the Marcellus, Utica.
You've got the Eagle Ford. You've got the Permian. We've got the Haynesville. And so there'll be opportunities in those basins. We have in some of those basins, we have gathering positions that we will be able to continue to expand.
And then also maybe opportunities for takeaway capacity. Now on the market side, as I've talked to you about on the Texas Gulf Coast, we think there'll be opportunities there, maybe opportunities on the storage side as the LNG demand really grows and kicks in. ICF estimates that there's approximately $800,000,000,000 of North American energy infrastructure investment required to support the expected growth through 02/1935. So those are the things that help to give us confidence that we will continue to find attractive places to invest our capital beyond the $5,700,000,000 backlog. This is a slide that we call the Tale of Two Cities.
So on the left hand side of your screen, we did a drill down of S and P 500 companies. And we started with look at the S and P 500 companies that have net debt to EBITDA of less than five times. So that takes the 500,000,000 down to $412,000,000 Then look at how many are investment grade. That takes it down to two ninety eight remaining companies. Look at those that have significant size and scale, so market cap greater than $35,000,000,000 gets you down to 127,000,000,000 Look at the ones that have an EPS CAGR of greater than 15% for 2018 through 2020, that takes you to 21 companies.
If you look at those at a dividend yield greater than 5%, that takes you down to two companies. And then if you look at one that has a greater than 20% dividend CAGR from 2018 to 2020, that leaves you one remaining company. However, on the other side, you look at our valuation metrics relative to the S and P. We trade on an EBITDA multiple at 9.8 times versus the S and P at 11.3 times. So if you trade it at the average multiple, obviously, there's significant upside in our valuation.
And then our dividend yield is almost double that of the S and P 500. So just to summarize for you here, we have strategically positioned assets. Those assets are backed by 90% take or pay contracts or fee based earnings. We've got $7,800,000,000 of adjusted EBITDA. We've got $5,000,000,000 of distributable cash flow.
We've got a 25% increase in our dividend between 2019 and 2020. And we've got a highly aligned management team and we've got an active stock buyback program, of which we have already repurchased about $525,000,000 And so with that, we will take questions and just introduce with me today Anthony Ashley, who is our Treasurer and Peter Staples, who is the Director in our IR Group.
All right. Thanks, Kim. That was great. Maybe I'll just kick off the first one here. We just had our private equity panel next door and one of the themes was the public to private divide and valuation.
And I think Kinder Morgan's largely due to sort of bellwether for midstream, traded 9.8 times, clearly discount. What do you think maybe closes that gap? You guys have done a lot over the last few years that's been shareholder friendly between deleveraging, simplifying capital return, etcetera. I guess what else do you feel like you need to do to close that gap? And at what point does going private, I guess, again, your circumstance become part of the conversation?
Well, we're were private in 02/2007. We were a much smaller company. And so and the other thing is we've done a lot to repair the balance sheet and go private probably involves levering up. So I'm not saying that it's impossible, but it's a lot different picture now than what it was when we went private earlier in our history. So I'm not sure exactly what closes that gap.
We have, from time to time, sold assets. And when we can get very attractive valuations for those assets, then and that delivers value to investors, we will do that. There are no sacred cows. That being said, it's very disruptive to go out there and market your assets. So that's not something that we do lightly, but when people come in with offers that are attractive, we absolutely will evaluate those.
And if it makes sense for our shareholders, then it is something that we will consider and execute. I think from our perspective, and that's on the last slide here, is we can't change the market sentiment. That's not something that we can control. What we can control is the decisions that we make. And I think over the last couple of years that we have made all the right decisions in terms of improving the balance sheet, in terms of investing in high return projects, in terms of the growth in the dividend and the share repurchases with the excess cash flow.
I think those are and targeting very high return projects. I think those have been all the right decisions. The disposition of Trans Mountain, which was part of or a large part of what helped us get to the 4.5 times debt to EBITDA. So those are all the right decisions. And we will continue to make the right decisions for this company and stay focused on making money.
Any questions?
Sure. So upstream one of the things you saw in here is that we have 90 take or pay contracts and the rest and fee based. So on the take or pay contracts, you don't have a lot of upstream exposure. The upstream exposure really because on take or pay, your volumes are fixed and your price is fixed. And so really there, exposure really comes on the credit side.
And we've got a slide that in our investor conference, you can see we've got very nice creditworthy customers for the most part. So not a lot of exposure on that. On the gathering assets, those are largely fee based. And so and that's a significantly smaller piece of our business because about 66%, I think, of our business is take or pay. And then the fee based, I believe, Anthony, is about 20%.
And so you have on the 20%, there you don't have price risk because it's a fee, but you do have some volume risk. And so there, you could have some to the extent that there are less volume showing up, you could have some exposure. That being said, the primary basins in which we operate Bakken, Haynesville are our two largest gathering positions. There, we've got very nice economics and economics that work at current prices. And so you don't have a lot of exposure there.
So that's how. On the CO2 side? Yes. So about yes, about 7% of our business is in the CO2 oil and gas production business. And so what that is, is we have about 4% of our business is CO2 sales and transport.
So we own the source fields in Southwest Colorado. We own pipelines that transport that CO2 down into the Permian Basin. And for a big piece of that volume, we just sell it to third parties under long term take or pay agreements. But for some of that volume, we take it and we have really two primary producing fields. We've got five fields, but two are the most significant ones, Sackrock and Yates.
And then we inject the CO2 and we produce oil. And so there, what you have is you've got some volume risk on the oil production side and then you've got price risk. If you look at the volume risk, we have been within 1% of our budget over the last ten years in terms of predicting those volumes. So because this is a primary production, this is tertiary production. And so it's very different.
Have been in these fields for many, many years. You've got a lot of geologic information on them. And so you're really just extending out the tail. So we've largely been able to call the production within a very narrow band. And then on the price side, there for the near term, we're largely hedged.
So you don't have a lot of price exposure in the current year and then probably about 50% exposure two years out. So really what you have there is more medium to long term price risk on that 7% of our business. And if you look in 2019, that sensitivity and this includes the sensitivity across all our businesses, but most of the sensitivity comes from the CO2 segment. It's about $8,000,000 in DCF per $1 per barrel. And I'll put that in context of the $5,000,000,000 of DCF that we generate.
Hey, Kim. On Slide 10, you talk about capital allocation priorities. So balance sheet dividend, capital projects, share repurchases. In your response to Spiro, you talk about all the asset divestitures you've done, it's TMX or S and G a few years ago and several others I'm sure are missing. Can you talk about where acquisitions fall into that capital allocation priority?
I mean you guys have built an empire on acquisitions. So I'm just curious where that falls. Does that compete for capital projects? Does that compete for buybacks? Where do you and also in response to like the public private arbitrage, do you see acquisitions even out there?
Or is it
just too far
I mean I think the a couple of things. One, the they would fall into the bucket, in my mind, of the capital projects. And so we're going to require similar type returns that we would. Now you don't have to build on an acquisition, okay?
And so you don't have that same risk. And so you have to put that in the context of the overall return threshold. And so I could see that being requiring less than the 15% return because you don't have that construction risk associated with buying in place cash flows. That being said, it's not going be we're not going to bid acquisitions to an eight percent return. So in the current environment, a lot of times, we're not going to be competitive on a one off acquisition.
Now to the extent that, that acquisition ties into an existing asset and therefore we can gain value from that acquisition that no one else could, then I can see where we could achieve our return threshold. So it's something, again, that we are open to. We constantly evaluate to make sure that we don't miss any opportunities. But I think in the context of the current market, those are probably going to be few and far between.
Maybe just a question on can
you just give me a little more detail on the update on PHP? Where does the project stand? And how confident are you on the October 2020? Yes. Both GCX and PHP are going as we would have expected and as we budgeted.
There is a difference in building in Texas and building in a lot of other places in North America. And so I think we have the right legal structure to be able to complete projects in Texas. And so things are going well.
You guys have made a very compelling case for a long time that stock is significantly undervalued.
Could you
sort of walk back through why you're not even more aggressive at buying it back if it's undervalued by 50%?
Yes. So again, it goes back to evaluating the returns on projects relative to the returns on share repurchase. And I think the share repurchase opportunity, as you look, and it can be anywhere from 12% to 20%. I mean and that's very rough. I mean, but that gives you an idea of where that range sits on a levered basis versus projects that are 25% to 30% on a levered basis, okay?
And to get to the high end of the share repurchase, you need to be willing to assume significant expansion on the multiple. And that's not true to get to the 25% to 30% on the capital projects. And so we have been able to find significant capital projects that meet our return thresholds. And we have been focused on living largely within cash flow and keeping our balance sheet at the 4.5x. And so the combination of all those factors means that while we've allocated some dollars to share repurchase, about $525,000,000 we haven't we've spent more money on capital projects.
So I think we're out
of time, so I can't ask you how many shares Rich is going
to buy today. We'll do it for
next time. Please join me in thanking Kim and the Good Morning team.