Enterprise Products Partners LP (NYSE:EPD) and Questar announced plans to develop the White River Hub, a new pipeline hub which will connect EPD’s natural gas facilities located near Meeker, CO with 6 other interstate pipelines (including Questar pipeline). Slated for completion in the Fall of 2008, the system will allow shippers increased access to key markets on both the east and west coasts.
Benchmarks have always been an important part of investing. In general, most investors compare the performance of their stock portfolio against the S&P 500 (an index comprised of some of the largest US corporations). However, until recently a universal index for benchmarking Master Limited Partnerships (MLPs) was hard to come by. After some research, I was able to find an index which is considered the de facto standard for benchmarking MLPs: the Alerian MLP Index. The ticker is AMZX, and the performance of the index has a lot to say about the kind of returns MLPs can deliver.
According to data from Alerian Capital Management, the AMZX index has outperformed the S&P 500 over 1, 3, 5, and 10 year intervals. In fact, the AMZX index has a Compound Annual Growth Rate (CAGR) of about 18%, compared to around 6% for the S&P 500!
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Teppco Partners recently purchased an underground Liquified Petroleum Gas (LPG) storage cavern in Middleton, Ohio, helping raise the midstream company’s capacity for storage by over 300,00 barrels. The purchase is in line with the MLP’s expansion into the midstream LPG space, and has helped boost delivery capability of the Greensburg / Eagle pipeline segment by around 40%.
LPG is essentially a mixture of hydrocarbon gas (typically propane and butane) that can be used for heating or, as is increasingly the case, as a refrigerant in air conditioning systems. This recent trend was sparked by the need to decrease use of chlorofluorocarbons in cooling systems due to their environmental impact.
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Bear Stearns is now offering Exchange Traded Notes (ETNs) that are tied to the Alerian MLP Select Index. Per Alerian, the notes are the first of their kind, and allow investors to diversify risk across energy MLPs while owning only one security. ETN holders are entitled to the equivalent cash distributions (paid monthly) of the underlying MLPs in the index.
However, the distributions are considered ordinary income. That is, they are taxed like dividends. In contrast, investors who invest directly in MLPs are allowed to defer taxes on cash distributions until they sell their MLP units.
The downside to these deferrals is the paperwork involved, as owners of MLPs can be required to file tax forms in every state where the entity does business. Owning an ETN eliminates this problem, as investors simply fill out a 1099 as with other investments.
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