U.S. Energy Demand Fuels MLP Growth
“U.S. Is Overtaking Russia as Largest Oil-and-Gas Producer,” Wall Street Journal, October 2, 2013
“U.S. Gears Up to Be a Prime Gas Exporter,” New York Times, September 30, 2013
From our perspective, we believe the U.S. is in the early innings of a U.S. shale boom and energy renaissance. While the past 10 years were mostly about gaining U.S. energy independence, we expect the next 10 years will be focused on the country becoming a major energy exporter.
All signs seem to point to a need for further investment in U.S. energy infrastructure. For example, look at what’s happening with the build out of LNG (liquefied natural gas) liquefaction plants. Six plants have been approved and begun construction, and others are in the development queue. Significant additional investment is needed to support the expansion of existing plants and to drive other parts of the export value chain.
U.S. oil production is up 56% since 2011 and is expected to continue to boom over the rest of the decade. It’s much the same story for natural gas. Recent studies estimate that $890 billion will be spent on oil and gas infrastructure over the next 12 years, including $90 billion in 2014 alone.1
Where will the capital come from? We estimate that half of this spending will come from master limited partnerships (“MLPs”), publicly-traded securities that invest largely in oil and natural gas resources. In our view, MLPs represent an attractive opportunity for investors to gain exposure to the U.S. energy renaissance at this early stage.
1Source: IHS Global Inc., “Oil and Natural Gas Transportation & Storage Infrastructure: Status, Trends, & Economic Benefits” Report, December 2013.