How Oil & Gas Prices Impact MLPs

Written on August 3, 2008 – 9:03 am | by MLPInvestor |

Many investors assume, incorrectly, that fluctuations in oil & gas prices can significantly impact MLP unit prices.  However, the truth is that revenue from MLP assets (the majority of which are pipelines) is generated from a “toll road” model.  That is, it doesn’t matter how expensive the commodity shipped is - it only matters how much of it gets shipped.  Of course, high (or low) prices can impact the amount shipped - but energy demand has been growing fairly consistently over time.

A good analogy is, unsurprisingly, an actual toll road.  It doesn’t matter if 100 Honda Civics use the road or 100 Aston Martins - the same toll is collected and, consequently, the same amount of revenue.

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