When self-made billionaire Richard Kinder describes some of the broad trends impacting his Kinder Morgan family of companies, it’s worth paying attention. After all, the CEO started his energy storage and distribution business in 1997 and has since built it into the largest midstream energy company in North America. Kinder Morgan operates on a massive scale, with 75,000 miles of pipeline and 180 storage terminals, so the insights gleaned from such expansive operations likely have implications for other companies in the energy sector.

In an Oct. 17 earnings call, Kinder detailed both the positive trends driving record increases in distributable cash flow at Kinder Morgan Energy Partners LP (NYSE: KMP), as well as some of the negative trends chipping away at it.

King Coal Doffs Its Crown to Natural Gas

Of course, one of the biggest stories in US energy demand over the past few years has been King Coal’s eventual abdication to natural gas. The rush to develop US shale plays in recent years led to a glut of natural gas production, which has caused the price of natural gas to crater, falling as low as $1.91 per million British thermal units (MMBTu) earlier this year. These low prices coupled with new environmental regulations have spurred power companies to convert existing plants to gas generation, while mothballing aging plants that rely upon coal generation.

The price of natural gas has risen sharply since the April low, with natural gas futures for November delivery recently trading near $3.37 per MMBTu. But natural gas could rise even further, and it would still be a more economic option for electric utilities than coal.

The evidence of coal’s demise is borne out by statistics published by the Energy and Information Administration. Over 90 percent of all coal production is used for power generation. But coal’s share of this key market has been declining precipitously. During the 1990s, coal was used for 56 percent of all electricity generation on average, but it has now dropped to 36 percent year to date through the end of July–down nearly 18 percent from a year ago.

Meanwhile, natural gas has grown from an 18 percent share of the market for power generation in 2002 to a 31 percent share in 2012 through the end of July–a jump of 30.3 percent from a year ago.

Kinder Morgan’s midstream operations further reflect this shift with similarly stunning statistics. Natural gas throughput for its Tennessee system is up 20 percent year to date, 44 percent for its Colorado system, and 47 percent for its Southeastern system. As should be apparent, the significant increase in natural gas demand for power generation has been a major driver of Kinder Morgan’s cash flows this year.

But Coal Is Still King Overseas

While coal demand is down domestically, when it comes to global markets, US coal production still boasts a major advantage over natural gas: It can actually be exported. Although natural gas fetches a much higher price overseas, the US currently lacks the export infrastructure to get it there. And it will take at least several years to put such infrastructure in place.

Unfortunately for the coal industry, robust overseas demand for coal is not sufficient to offset the decline in domestic demand. But companies such as Kinder Morgan, which has extensive export facilities along the Gulf and East Coasts, stand to benefit from record coal exports.

Last year, more than 107 million short tons of coal were exported overseas, an increase of more than 31 percent from the prior year. Although key markets such as China and Europe are in the midst of a slowdown, coal exports are still forecast to total roughly 112 million short tons this year.

To take advantage of this trend, Kinder Morgan plans to invest $400 million to expand its coal export facilities along the aforementioned coasts. Once this expansion is complete, the company should be able to move 27 million short tons of coal a year.

Enhanced Oil Recovery

Kinder cited others trends, including the use of carbon dioxide (CO2) for enhanced oil recovery. CO2 flooding is employed as a tertiary process to extract oil from a field once the primary methods are no longer working efficiently to achieve that end. The Permian Basin in the western part of Texas is an important market for this process, and the company currently has a $225 million project underway to boost CO2 capacity.

Wet Gas Supplants Dry Gas

Finally, cheap natural gas has compelled energy producers to shift their efforts in the North American shale plays from dry natural gas to wet gas. Kinder Morgan already has infrastructure in place among these plays, so while it will be impacted by the drop in drilling activity for dry gas, it’s poised to take advantage of the industry’s turn toward wet gas.

Around the Portfolios

In its latest quarterly earnings release, Kinder Morgan Energy Partners LP (NYSE: KMP) reported that following its merger with El Paso earlier this year, it expects to grow its distribution 7 percent annually through 2015. The midstream energy master limited partnership’s (MLP) distribution actually grew 9 percent year over year to $1.26 per unit. Meanwhile, its distributable cash flow (DCF) rose 8 percent to $1.28 per unit before certain items.

All five segments at KMP posted better results versus the same period a year ago. The Gas Group’s numbers were largely driven by asset drop downs from the general partner, including a 100 percent interest in the Tennessee Gas Pipeline and a 50 percent interest in the El Paso Natural Gas Pipeline. The Terminals Group enjoyed record coal export volumes. And the CO2 Group benefited from strong oil and natural gas liquids production.

The Kinder Morgan family of companies now has over $11 billion of expansion projects on its books, which is a $1 billion improvement from last quarter. And most of these projects are slated for KMP.

Debt rose $4.8 billion to end the quarter at $7.4 billion, as the MLP borrowed money to finance acquisitions. But as part of its El Paso deal, Kinder Morgan is required by regulators to sell its assets in the Rockies. Management expects the divestiture to close in November, and it plans to use the proceeds to pare its debt by $1.8 billion.

Management expects $400 million in cost savings will be realized once El Paso’s assets are integrated into Kinder Morgan’s operations. That’s an increase of $50 million from earlier projections.

Kinder Morgan Energy Partners LP remains a buy up to 82 in the MLP Profits Conservative Portfolio.