The law of supply and demand is a wonderful economic principle, but I think seeing it worked out in practice is even more phenomenal. All we have to do to recognize the law, for instance, is put on our x-ray glasses, stop where we are standing, and look down about 5 feet or 6 feet. Under the ground on which we may walk or drive is a vast, extensive network of natural-gas pipelines connecting regions with high supply to areas of high demand. And, it is expanding at a rapid pace.
Manager Justin Carlson of Bentek, a leading energy analytics firm, preaches that Americans are "not doing enough to support growth" and that "the market needs more users." Carlson is referring to the rising supply of natural gas flowing from the rich Marcellus and Utica shale plays. The result of the supply increase is due to two factors: a growing emphasis by exploration and drilling companies to produce natural gas and a limited ability to transport the gas.
To address the first point, consider CONSOL Energy (NYSE: CNX ) , a historic coal producer for energy and raw-material markets in the US, Canada, and Western Europe. But since the natural-gas boom in the Appalachian region, CONSOL has been actively increasing its operational capacities, as seen by the below chart.
|Coal Reserves||Net Gas Reserves|
|2012||4.3 billion tons||4.0 trillion cubic feet|
|2011||4.5 billion tons||3.5 trillion cubic feet|
|2010||4.4 billion tons||3.7 trillion cubic feet|
|2009||4.5 billion tons||1.9 trillion cubic feet|
|2008||4.5 billion tons||1.4 trillion cubic feet|
Within five years, CONSOL grew its net gas reserves 286%, and the company shows no signs of slowing down. For instance, the energy producer recently secured a contract over EQT to drill on Pittsburgh International Airport's 9,263 acres through 2018. But CONSOL and its competitors are beginning to face a major problem: the inability to transport the natural resources due to a lack of a sustainable infrastructure.
Therefore, in order for demand to meet the growing natural gas production by companies like CONSOL within Appalachia, the infrastructure must be improved. It needs to expand. So pipeline companies are being called upon by corporate and government figures alike to build upon the underground network that transports natural gas.
Before looking at two master limited partnerships that offer strong dividends and are positioned to reap benefits for investors, let's quickly look at some of the benefits of a MLP. First, many MLP's are midstream, meaning they transport natural resources from production sites to a market site where the resources are processed, stored, or shipped. So MLPs are an integral component in the supply chain and are not greatly affected by major commodity price swings.
Also, because they are structured as partnerships, the entities enjoy certain tax benefits while maintaining the same liquidity as stocks. Here are two MLPs with increasing opportunities for growth.
Sunoco Logistics Partners (NYSE: SXL ) is an early leader in building pipelines within the Marcellus and Utica shale plays. One of its lines, known as Project Mariner East Phase One, is expected to begin by the end of the year and will specialize in transporting propane and ethane to a facility where both products can then be distributed.
Remarkably, the pipeline is estimated to transport 70,000 barrels of product per day, and Sunoco Logistics Partners entered a 15-year agreement with Range Resources, the first company to drill in the Marcellus region. The contract states that Range will be the "anchor shipper" within the new pipeline.
Project Mariner West is Sunoco Logistics Partners' second major undertaking whereby the company plans to carry up to 50,000 barrels of ethane each day from Western Pennsylvania to Ontario, a hub for the petro-chemical market.
Also, it is important to note that Sunoco Logistics Partners has been consistently increasing its dividend since May 2002.
|Sunoco Logistics Partners||Spectra Energy|
Texas-based Spectra Energy (NYSE: SE ) and its wholly owned subsidiary Spectra Energy Partners (NYSE: SEP ) are also jumping on opportunities via a division coined Texas Eastern Transmission. The division is undergoing a $520 million expansion, known as TEAM 2014 Project, to "meet customer demand" by installing and upgrading a pipeline.
The plan is expected to pass government approval and will begin as soon as mid-2014. Spectra's goal is to:
...efficiently and cost-effectively expand the Texas Eastern system to accommodate increased natural-gas production from the Appalachian region and deliver these critically needed natural-gas supplies to diverse markets in the Northeast, Midwest, Southeast and Gulf Coast.
Additionally, Spectra Energy is expecting to invest around $4 billion by 2016 to further develop the infrastructure within the Marcellus and Utica shales.
Producers of natural gas, like CONSOL Energy, are calling upon infrastructure builders so that growth can be sustained and even continue. Therefore, expect to see Sunoco Logistics Partners and Spectra Energy, along with other MLPs, rise to the challenge.
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