Alright. Good morning, everyone. My name is Kristine Kuberian and am the Head of
the Midstream and Refining Equity Research teams over here at CF. This morning, I have the pleasure of introducing Kim Dang, who is the CFO at Kinder Morgan. Kinder Morgan is one of the largest energy infrastructure companies in North America with assets spanning most supply basins as well as demand hubs and particularly high leverage to the long term natural gas demand growth story. With that, Kim, thanks so much for joining us in Vail today.
Thanks, Christina. Happy to be here. Some good snow lately, too. So, at Kinder Morgan, we have an unparalleled asset footprint. We are one of the largest energy infrastructure companies in North America.
We've got a leading position in all of our business units. So, are the largest natural gas we have got the largest natural gas transmission network in North America. We are the largest independent transporter of petroleum products. We are the largest transporter of CO2. We are the largest independent terminal operator and then we have the only oil sands pipeline serving the West Coast Of Canada.
If you look at our structure, we have two publicly traded companies, KMI on your left hand side, KML on the right hand side. KMI is almost an $80,000,000,000 enterprise company. It's got an investment grade balance sheet and owns and operates diversified midstream assets in The United States. And it owns a 70% interest in KML. KML houses our Canadian assets, including the Trans Mountain pipeline and the expansion project.
We took KML public in May of last year with the to help us finance the Trans Mountain expansion. And we created it and set it up to be a self funding entity, meaning that it could fund on its own the CapEx associated with its projects, the biggest of which is Trans Mountain. And to date, that has been the case and we expect that will continue to be the case. Another thing I'd point out on the slide is that management is aligned with investors. Management and the Board of Directors own a 14% share of KMI.
Our CEO, Steve Kane, gets $1 a year in salary, he gets no bonus and he gets no options. So, is aligned with the investors. If you look at our strategy, our strategy hasn't changed. We want to own stable fee based assets that are core to the energy infrastructure. We want to maintain a strong balance sheet.
We are investment grade rated. We have reduced debt by almost $6,000,000,000 since the third quarter of twenty fifteen and we are currently funding all of our investment needs with internally generated cash. We're focused on controlling our cost, but we don't want to be penny wise and pound foolish. So, we're also very focused on operating safely. We track 36 different environmental health and safety criteria and statistics.
And in '33 of the 36, we are better than the industry average. We also track on time compliance. So, we track almost 540,000 tasks that have what we expect people to do and the time line that we expect them to do it, so that we make sure that we are not missing on a reapplication for a permit. And our on time compliance last year was 99.9%. We seek to make attractive investments.
Generally, we target around a 15% unlevered after tax return. That will vary depending on the risk of the cash flows. Some assets we expect higher, some assets, we will accept a slightly lower return. But since 1997, we have invested over $60,000,000,000 in capital either through expansion CapEx or acquisitions, roughly evenly split between the two. And then we are focused on being transparent to our investors.
We publish our annual budget every December we announce it. And then in January, we take our investors through a line by line comparison versus the prior year. And then we also compare to it quarterly results against our budget in each quarterly earnings call. So, I think it's interesting. As I've said, we've invested $60,000,000,000 in capital.
I think it's interesting to look at our recent performance on those investments given the industry backdrop over the last couple of years. So, we've invested in terms of we've completed projects between 2015 and 2017 of about $9,000,000,000 And on that $9,000,000,000 that we invested in products, natural gas and terminals, we have achieved a 6x investment multiple. That is just the CapEx that we invested divided by year two EBITDA. We use year two EBITDA because this is something that we look internally in the company all the time and we do have some projects where EBITDA ramps. But on over the last three years, even if you looked at it at year one EBITDA, the investment multiple would be 6.1x.
And so, I think the reason that we've been able to achieve these results is, one, a significant amount of these investments, the contracts with our shippers and customers are take or pay. So, we are getting those revenues whether or not our shippers use the assets. Secondly, to the extent that we make an investment that is not backed by a take or pay contract, we are very conservative. So, if we made a gathering or a processing investment, we're very conservative about what volumes that we expect to achieve. And then thirdly, we spend a lot of time tracking our CapEx that we invest and making sure that we are bringing our projects in on time and on budget.
We meet on a monthly basis to go through the projects, where they are, how they are performing, what we are seeing on cost. And then we take all that information and we feed it back into our estimating group so that we can make sure that as they're estimating new projects, they have the most current data. So those are a couple of reasons I think we have been very successful there. Looking in 2018, our budget guidance that we went through in January at our Investor Conference, we are expecting adjusted EBITDA to be just under $7,500,000,000 that's about 4% growth from 2017. We are expecting distributable cash flow to be about $4,570,000,000 that's 2% growth from 2017 DCF per share of $2.05 In 2017, we achieved $2 per share, so that's 3% growth.
The dividend per share coming off $0.50 going to $0.80 and that's consistent with the three years of dividend guidance that we have laid out. That's a 60% increase in 2018 over 2017. We are budgeting growth CapEx of about $2,200,000,000 which is down year over year. And then net debt to adjusted EBITDA, are expecting to end at about 5.1x, which is consistent with where we ended 2017. Now, we would expect based on this to generate $568,000,000 of discretionary free cash flow.
And the way I get there is I just take the distributable cash flow of the $4,000,005 $6,000,000 off the expansion CapEx of 2215 and then take off the dividend at $0.80 that leaves $568,000,000 in discretionary free cash flow. So we will use that excess cash flow, one, to invest in incremental projects that we identified during the year that are above and beyond what we have in the budget in the $2,200,000,000 to make additional share repurchases or to pay down debt. We announced last year a $2,000,000,000 share repurchase program that we expected to start in 2018. We were actually able, based on our 2017 results, to start that share repurchase in the fourth quarter of last year. And between the fourth quarter of last year and what we've done in 2018, we have repurchased about $500,000,000 worth of stock.
It's about 27,000,000 shares. Breaking down our earnings before DD and A by business segment, 93% of our EBITDA is generated from pipelines and terminals. Looking at the breakdown between the segments, 56% is coming from natural gas. So, as Christina mentioned, we are heavily weighted to the natural gas sector. If you look at the breakdown further in natural gas, about 80% of our natural gas segment comes from what I call large diameter pipes.
So, long live large diameter pipes, think of them like the interstate highway system. And then a little under 20% is associated with gathering and processing, primarily in the Eagle Ford, in the Bakken and in the Haynesville. Product pipeline is about 15%. About 60% of products pipeline is associated with refined products, that's moving gasoline, diesel, jet fuel. About 40% is associated with crude and NGLs.
Our terminals break down the 15% of the terminals breaks down about 80% liquids terminals liquids terminals, which includes our Jones Act ships. The liquids terminals typically we are storing gasoline, diesel, jet fuel as our predominant business within the liquids. Then we have the Jones Act tankers. On the bulk side, what we are doing, the 20% that's bulk is we are transloading coal, pet cokes and steel for customers. CO2 is about 11% of our overall business.
About 7% of that is related to oil production. About 4% is related to what we call our sales and transport business. So, we own CO2 source fields in Southwest Colorado. Some people refer to them as performing natural gas fields because it's almost pure CO2. We produce the CO2 in Southwest Colorado.
We have pipelines that take it down into the Permian Basin where we sell that CO2 to third party customers. That's what our sales and transport business is. Typically, on those assets, we have take or pay minimum commitments from our shippers. On the 7% that is oil related, there we are taking a portion of of the CO2 that we are bringing down the pipe and utilizing it in our own oilfields. We have two primary oilfields, Stackrock and Yates and we hedge that production, which I am going to show you in a minute.
And then Kinder Morgan Canada, 3% of our overall business, that's the Trans Mountain pipeline that moves oil sands production to the West Coast Of Canada and gets that production a world oil price. Looking at the breakdown of our contracts now, so I broke it down for you by our business segments. Now, is how the underlying contracts work. About 96% of our cash flow is independent of commodity prices for our 2018 estimate. About 66% of this is fee based take or pay.
That means that what customers are doing is they are renting space. They are renting space on our pipelines or they are renting space in our terminals. Just like when you rent office space, you have to pay for that space whether or not you use it, okay? So, in the short term, it doesn't matter if the customers are using it. Now, in the long term, we want them to use it because that impacts renewal.
But in the short term, no impact from usage no material impact from usage on our revenues. About 24% is fee based, but you could have some variability in the volume. So, on the fee base, the fees are they are flat fee, fixed fees. They are not tied to commodity prices, but the volumes aren't guaranteed. And so, if you look at the breakdown of that 24%, about 10% of that is in our natural gas pipelines and that's primarily on the gathering and processing side.
But generally, those volumes are secured by dedications of economically viable acreage in the Haynesville and the Eagle Ford in the Bakken. If you look on products, products is about 9% of the 24%. Here on products, what we are doing is we are connecting refineries to markets, okay. In The U. S, we have the most efficient refining complexes in the world.
So, we have got refiners that run at pretty high capacity rates that are feeding markets in The U. S. And petroleum product demand, as I will show you in a minute, is fairly stable. It generally grows with demographic growth. So, is not a lot of variability in the demand there.
So, the volumes on that system are pretty stable and grow with demographic growth. On terminals, that's 4% of the 24%. On that, 88% of the fee based of our fee based revenues are associated with high utilization assets. What I mean by that is, so our liquids terminals, people are paying for the tanks whether or not they use them, but we have a very high utilization rate at those terminals. And what's in this bucket for terminals is the ancillary fees we get when they move product around our terminals.
So, if they are turning the tank multiple times and given that these have been high utilization for a very long period of time, those revenues are pretty secure. It also has requirements contracts for pet coke and steel. On the pet coke side, here, if the refineries are producing the pet coke, then we are transloading it, moving it for them. So, relatively stable business there. And steel is primarily associated with Nucor where we have requirements contracts.
If they are going to move it through their terminals, we are going to handle it. About 6% of our cash flow is hedged and that's primarily in our CO2 group. Here, you look at that, we spend we have a very consistent hedging program. For 2018, we have about 70% of our volumes hedged. And if you look at the volumes that are contained within the 6%, if you think about our volumes on CO2, because that's not guaranteed when we are producing the oil, this is all associated with the oil production, because the S and T are generally in the take or pay bucket.
The oil production has come within 1.4% of our budget over the last ten years. So unlike some of the primary production, the CO2 production is tertiary production. There are years and years of studies on these fields. And so you just have a better idea of how these are going to perform. You don't have as much variability in their performance.
And then 4% of our cash flow is commodity based cash flow, as I mentioned. If you look at our sensitivity to oil prices in 2018, It is $7,000,000 in DCF for every $1 change in the price of crude. Our budget assumes a crude price of $56.5 which is pretty close to where we are today. We have a $12,000,000,000 backlog of projects, fee based projects in terminals, pipelines and associated facilities that are generally secured by long term fee based contracts with creditworthy counterparties. If you look at the 85% of the backlog that is in fee based pipelines and terminals, that's the $10,200,000,000 that you see there on the screen.
We expect that, that $10,200,000,000 will generate about $1,600,000,000 in adjusted EBITDA. That's a 6.5x investment multiple. So, very attractive returns on our backlog of projects that will come online over the next five years. Then if you look at the $1,300,000,000 that's in the oil and gas production on CO2, There, we target to earn greater than a 15% unlevered after tax return on those investments. And that's just because those investments have higher risk and so we target to earn a higher return on those investments.
Let me talk a little bit about the underlying fundamentals in our business that drive stability and growth. First, starting with the natural gas market. If you look at demand for natural gas, the two big drivers of demand for natural gas over the next several years are LNG exports and exports to Mexico. So, you can see between 2017 and 2018, LNG exports are expected to grow 1.5 Bcf a day. If you look at it between 2017 and 2019, they are expected to grow 3.6 Bcf a day.
So, tremendous growth in demand for natural gas from LNG exports. Exports to Mexico from 2017 to 2018 expected to go about 300,000,000 cubic feet a day, from 2017 to 2019 as they bring on more of their infrastructure over one Bcf a day over those two years, more of the growth coming between 2018 and 2019. Also natural gas used for power demand is supposed to increase. Now, if you look, it was down a little bit in 2017. That's a function of warmer winter and some switching to coal.
But longer term, we expect that natural gas demand for power generation will increase as a result of power plants converting to gas. On the upper right hand corner, you can see product demand U. S. Refined product demand. So, that's gasoline, diesel, jet fuel.
And you can see, as I mentioned, very stable demand for those products with some modest volume growth. And so that's primarily a fixed cost business. And so if you can drop that modest volume growth to the bottom line, you can get some attractive growth from those assets. The other thing that we get on the products pipeline is we get an inflation escalator every year. So, every year, right now, the inflation escalator is PPI fixed goods plus 1.23%.
So, for 2018, it will be a little bit over 4.4%. Crude oil production, you can see crude oil production forecast for the next couple of years expected to grow both in The U. S. And in Canada. So, nice underlying fundamentals for the businesses that we are in.
And if you take a longer term look at natural gas, natural gas obviously as I have mentioned is over 50% of our business, You can see longer term natural gas demand over the next five years, the projections are that it will grow by 19 Bcf a day over ten years, 26 Bcf a day, so 2433% growth respectively. And that's driven, as I mentioned a couple of times, by LNG export demand, industrial demand and exports to Mexico with supply coming from the Utica and the Marcellus from the Eagle Ford and from the Permian and also some coming from the Haynesville. So, we believe we are well positioned for long term success. We have got world class midstream assets. We have got fee based cash flows that are secure and growing.
We have been disciplined in how we allocate our capital. We have a high bar for new investment opportunities. We have attractive project execution. I showed you the 6x investment multiple that we have earned on the projects that we have placed in service between 2015 and 2017. We have got a strong financial position.
We have got an investment grade balance sheet. We have got a lot of liquidity and we are funding all of our CapEx with internally generated cash flow. We have got an experienced management team and we are very transparent with our investors. And therefore, we believe that we will continue to deliver value to our shareholders. We will use the excess cash flow that we have to invest in high return projects to delever our balance sheet.
Our longer term target is to be less than 5x at or less than 5x debt to EBITDA and to return cash to our shareholders either through dividends or from share repurchase. We expect that we will we have laid out dividend guidance over the next couple of years. We expect we will be growing our dividend, as I mentioned, 60% this year and then 25% for the two years thereafter. If you look at the business risk that we have, obviously, you have got regulatory risk from FERC rate cases. You have got permitting issues as we are putting new projects into service.
We try to take those into account both in our cost estimates to the extent we think it's going to cost us more or in time to place those projects in service. I've mentioned the crude oil production volumes. You have risk on those volumes, although we've been very successful at predicting what those volumes would be in our budget. You have got commodity price risk on about 4% of our distributable cash flow and you can see the sensitivities laid out. You have the potential for cost overruns and in service delays on our project backlog, although again historically we have been very successful at bringing those projects in on time and on budget.
We have some economically sensitive businesses, that's primarily in our terminals, largely associated with steel and coal. We are on our Canadian business, we own 70% of our Canadian business and so those cash flows are subject to FX risk. Obviously, and terrorism, those are insurable. But on the environmental side, those should happen. That certainly is a reputational risk, although we work very hard, as I mentioned, to stay in front of that and make sure that we are safely and efficiently operating our assets.
And then on interest rates, we float on about 28% of our debt. So if you had 100 basis point increase for the full year, so that would mean on January 1, interest rates increased 100 basis points. The other way to think about it is if you had a 200 basis point move over the year, that would average 100 basis points. That's about $100,000,000 exposure. Now, when we do our budget, we factor in the forward curve.
So, in October and November, around that time frame, that's generally the curve that's reflected in our budget. So our budget does have an increase in interest rates factored into it. Okay, I am not going to spend a lot of time on this slide. This is for you guys to determine, but I just lay out a few facts for you. We trade at a discount to our peers.
If you look at it on a price to DCF, we traded 8.8x versus 12.1x for the average of our peers. If you look at EV to EBITDA, 10.7x versus 12.5x. As I mentioned, we've got very good dividend growth over the next couple of years, 36%. And we've got very nice coverage at 2.6x as we continue to fund all our investment needs with internally generated cash. And so we think that it's a compelling investment thesis, 60% dividend increase for 2018.
We are expecting to further increase that dividend by 25% in 2019, again, another 25% in 2020. And then we've got $2,000,000,000 of expected share repurchase, which we've done to date about 500,000,000 repurchasing 27,000,000 shares. So, with that, I'm happy to take any questions.
Sounds great. Plus, I see some hands in the crowd. I'll probably go first, Kim. Kim, Trans Mountain makes up a big portion of your gross backlog and feels like even since the Analyst Day, we get in flooded with updates and announcements. Can you kind of give us where the project stands right now and what kind of milestones we should be watching for?
Sure.
So, we did there's a slide in our investment conference for those of you who want more details that lays out some of the criteria that we're looking for. But just to back up for a second, Trans Mountain is the largest project in our backlog. We announced when we announced our 2018 budget guidance that we were going to spend that we weren't going to go into full construction mode, that we're going to spend at a reduced level from a full throttle push towards completion until we had more clarity and were sure that we could complete what we started. And what we mean by that is we need to have a high confidence level that we are not going to get stopped We need to see that we're going to get the permits that we need.
We need to see that permitting authorities can't hold us up. We need to see that we are going to be able to acquire the lands that we need. And we need to see that we are going to that our NEB and federal ordering counsel will not be somehow revoked by a court decision. So those are the things that we're looking for. And in order to accomplish some of those things, some of those things we can have input into and some control over, some things we can't.
So the court decisions, we would expect if they were tracked on the same time frame as the decisions that were rendered in Northern Gateway that we would see court decisions by midyear. On the permitting, we have done a number of things to try to ensure that we have more confidence about getting those permits. We made a filing two filings essentially with the NEB last year, one with respect to Burnaby, who was taking an inordinate amount of time to issue our permits. And what we said is NEB, you have federal preemption here. We think that we have fulfilled the permit requirements and they're not and the permits are not forthcoming.
Would you please exercise your paramountcy? And they did. And then we also asked the NEB, would you please set up a generic process that has a fixed time frame to it so that we know if this happens with another permitting authority that we can come in and have a timely resolution of those permits. And they gave us most of what we wanted on that. They extended the timeline a little bit from what we proposed, but not anything that we can't live with.
So those are some of the things that we are doing to try to ensure that we can have a clear path once we know the outcome. We still need to get a clear path on the lands. We still need to see where the court decisions are. We still need to see some of these permitting agencies to see how quickly they're going to act. But we've had some positive developments recently.
Great. I will do another one. At the Analyst Day, Steve talked about 2,000,000,000 to $3,000,000,000 of potential projects a year that could replenish the growth backlog. Can you talk about maybe some of the opportunity set across your portfolio, maybe even on Cheyenne, Double H, how you are thinking about some of the opportunity sets in terms of conversions with those projects as well?
Sure. Obviously, more recently, one project that we have added to our backlog obviously is Gulf Coast Express, which is a natural gas pipeline to move natural gas from the Permian to the Gulf Coast to feed LNG demand, to feed exports to Mexico. So, very nice project with long term take or pay contracts. Those are the types of projects that we would like to add. That project is beneficial to us because it feeds volumes into our existing Texas intrastate system.
We're looking at conversion project, as you mentioned, of some of our assets. Only going to do it if we can get the contract structure and the pricing to generate the returns that we would like. But one of those potential projects would be converting Double H from crude service into NGL service and then converting our Cheyenne Plains and a small portion of our Wick natural gas pipelines, which are underutilized Rockies pipelines to NGL service. So that one there's a lot more to come on that one, but that is typical of the type of projects that we would look to add to our backlog.
Perfect. I think in the interest of time, I will leave it there. Thanks so much for joining us today.