America Needs to Expand its Energy Infrastructure, Which Will be a Boon For Midstream MLPs

The oil and gas boom in the United States keeps on ramping up. Oil production has reached levels not seen at any point in the last 25 years, according to the U.S. Energy Information Administration. In fact, domestic oil production could even reach the historic highs of 1970 shortly. Meanwhile, natural gas is enjoying a revolution of its own in the United States. This is due to massive domestic supplies that are suddenly viable thanks to new drilling techniques such as hydraulic fracturing.

Of course, if all this newly tapped oil and gas is to properly serve Americans, it needs proper infrastructure. This means pipelines, storage terminals, and processing plants, which are about to see huge demand for their services.

Why midstream MLPs should be in focus
MLPs, or Master Limited Partnerships, that engage in midstream activities have been winning big due to the shale revolution in the United States. Signs point to continuing the trend given the huge amounts of oil and gas resources in the most promising onshore fields in the U.S., including the Permian Basin, Eagle Ford, and Bakken shale formations, still in need of proper infrastructure for storage, processing, and transportation.

Consider that the United States Energy Information Administration reports that these three onshore plays are each at or near the 1 million barrel-per-day production mark. This means that the Permian Basin, Eagle Ford, and Bakken developments are the only three onshore fields in the United States to have reached that daily production total.

All that oil and gas needs processing, storing, and transporting, and that's where well-run midstream Master Limited Partnerships make their money. Enterprise Product Partners (NYSE: EPD  ) is proving the strength of oil and gas production in the United States with its business performance.

The company's liquids pipelines hit record volumes in the third quarter. In all, volumes transported by the company's natural gas liquids, crude oil, refined products, and petrochemicals pipelines increased by 845,000 barrels per day, or 20%, to a new record. And, Enterprise Products' adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, rose 9% through the first nine months of the year.

America's oil and gas boom will require major infrastructure investment
Midstream MLPs will need to vastly build out their existing infrastructure if they are to meet the unique set of challenges presented by the potential for true energy independence in the United States. Thankfully, Kinder Morgan Energy Partners (NYSE: KMP  ) and Plains All American (NYSE: PAA  ) are more than up to the task. They're both planning billions in spending to build miles of new pipelines, as well as additional storage and treatment facilities.

Kinder Morgan has identified more than $14 billion in investment opportunities to keep its growth strategy firmly on track. After releasing its third-quarter results, Chairman and Chief Executive Officer Richard Kinder stated, "We continue to see robust growth opportunities across all of our business segments."

For its part, Plains All American is in the process of a multi-billion dollar portfolio of its own organic growth investments. This should allow for 2014 to be a very profitable year for the company, and management expectations more than reflect this. Plains All American expects to generate 20% growth in its core fee-based activities.

Final thoughts: Midstream MLPs are positioned to excel
Midstream MLPs such as Enterprise Products Partners, Kinder Morgan Energy Partners, and Plains All American have a crucially important role to play in America securing its energy independence. They operate businesses similar to toll roads, in which they process and transport oil and gas across the country, and collect fees based on the volumes they move.

As a result, as economic growth in the United States improves in the year ahead, and as oil and gas production continues to ramp up, these three midstream MLPs should have great years ahead.

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Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

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Related Tickers

8/27/2015 4:02 PM
EPD $28.46 Up +1.20 +4.40%
Enterprise Product… CAPS Rating: *****
KMP $0.00 Down +0.00 +0.00%
Kinder Morgan Ener… CAPS Rating: *****
PAA $34.95 Up +1.72 +5.18%
Plains All America… CAPS Rating: *****