As millions of barrels of oil continue to spill into the Gulf of Mexico, the U.S. is beginning to look at viable alternatives to offshore drilling.  This is a good thing for infrastructure MLPs, because  the logical choice is to increase the use of natural gas as an energy source.  More gas demand means more gas moved through pipelines, which means higher profits for these businesses.

The December issue of Kiplinger’s Personal Finance magazine has an interesting article on finding value in today’s current market.  Specifically, the article mentions the rapid decline in commodity prices (such as natural gas) as speculators flee investments in the energy market due to weak demand.

As a result, some pipeline companies (which actually have limited exposure to these prices) have unduly suffered.  For example, Crosstex Energy LP (XTEX) has fallen over 70% since July – even though it has continued to grow cash distributions to investors.  While it had a rough 3rd quarter due to major Hurricanes, at a price of $8 Crosstex has a whopping 25% distribution yield!  However, I like to see a coverage ratio close to 1.3x – Crosstex is below this benchmark with a coverage of around 1x.  Still, bottom line is the same – the market is likely undervaluing some of these companies as commodity prices fall.

The US Energy Information Administration (EIA) estimates natural gas consumption grew approximately 6% in 2007 vs. 2006. Forecasts call for continued growth of approximately 0.6% in 2008 and 1% growth in 2009 due to expected normal weather conditions.

Financial publication The Economist recently released its annual World in 2008 edition, in which it predicts natural gas to grow a healthy 3.4% in 2008. Further, per the article, the International Energy Agency expects natural gas to become the 2nd largest primary energy source worldwide by the year 2015.

Today, natural gas supplies about a quarter of energy in the US. However, forecasts by the US Energy Information Administration are calling for natural gas consumption to increase by over 40% by 2025! This is fueled primarily by the increased use of natural gas for electricity generation instead of coal. However, gas supply in the US is facing uncertainty as existing conventional wells continue to mature and dry up. This presents a problem for the US, as it begins assessing the possibility of increasing energy independence and using cleaner burning fuels.

continue reading "Why I Like Pipeline MLPs"

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.