The price of oil hasn't received this much media attention since, well, the last time oil prices moved this quickly in a matter of months. Since this past summer, the price of a barrel of West Texas Intermediate crude oil has been cut almost in half. As you can imagine, this has caused panic in the streets when it comes to energy stocks as investors have been heading to the exits faster than the rush to get a new TV on Black Friday.
While owning energy companies can help add needed diversity to many investors' portfolios, the simple fact that oil prices can go on these wild benders is enough to scare many people away.
Luckily for those who are terrified of seeing the share price of an investment get pulled every which way by the whims of oil prices, there is a subset of the energy business that may be just for you: pipelines. Let's take a look at this set of companies. No matter what the price of oil may be on any given day, chances are that these companies' profits will remain almost untouched.
It's not the price that matters, it's how much you move it
The most cost-efficient and -- despite the occasional spill -- the safest means for transporting oil and gas is via pipeline, and the U.S. has built out a massive network of pipelines to move them.
Think of this oil and gas pipeline network like America's energy highway -- a massive toll road system connecting wells, refineries, and distribution terminals. The price of oil and gas doesn't have much bearing on how much it costs to move product through these pipelines. In fact, three of the nation's largest owners of oil and gas pipelines generate more than 80% of their gross profits from fixed-fee contracts to move oil and gas that have no correlation to the price of these commodities
|Company||Type of pipelines owned by company||% of gross profit originating from fixed fees|
|Kinder Morgan (NYSE:KMI)||Crude oil, natural gas, refined products, CO2||83%|
|Enterprise Products Partners (NYSE:EPD)||Crude oil, natural gas, natural gas liquids, petrochemical products||85%|
|Magellan Midstream Partners (NYSE:MMP)||Crude oil, refined petroleum products||
These companies are much more concerned with the volume of product moving through the pipe rather than the price of the product in it. And based on how much oil and gas production has grown in the U.S. in recent years, there's plenty of stuff to pass through these pipes. During the past five years, domestic crude oil and natural gas production have risen 60% and 28%, respectively, and an investment in these companies has grown impressively with that surge in production.
Even though production may see a small hiccup or two depending on prices, it looks as though oil and gas production should continue to grow for at least a few more years to come, thanks to the abundance of these resources unlocked in recent years by advancements in drilling.
Powering your portfolio with pipelines
The recent boom in energy production across the United States has been a renaissance for the old-time profession of wildcatter. Those go-for-broke prospectors can gain and lose millions of dollars in a matter of months depending on whether they hit a productive oil and gas formation or not, and whether oil prices are high enough to sell the stuff at a profit.
Not all of us have the stomach to handle those kinds of ups and downs, and that's okay. Investments in America's energy infrastructure can give you all the benefits of booming production without the motion sickness brought on from watching oil prices on a daily basis.
Tyler Crowe owns shares of Enterprise Products Partners and Magellan Midstream Partners. The Motley Fool recommends Enterprise Products Partners, Kinder Morgan, and Magellan Midstream Partners. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.