Oil and gas supply growth in North America is creating a worldwide de-bottlenecking opportunity for MLPs. That opportunity relies on several factors outside of MLP control and beyond the scope of traditional MLP investments, including: government approvals for LNG terminals, the gradual or wholesale overhauling of a decades-old export ban, willingness of counterparties to contract for supply, and willingness by foreign companies to construct or convert infrastructure at the delivery points. All of this is on top of the massive financing requirements for export projects.
Despite all of the above, MLPs are finding ways to push beyond our borders to help US supply reach global markets by exporting oil and natural gas byproducts today, natural gas (via LNG) tomorrow and maybe crude oil someday.
Foreign demand for US products is there, at first based on price dislocations, but increasingly as a means for diversification of supply away from reliance on less stable sources (e.g. Russia and the Middle East). We wrote a brief paper on the subject of exports and the key role MLPs are beginning to play as sellers of energy on the global stage.
Below is a chart from that paper (click to enlarge), which highlights where existing exports are going today, where incremental exports may go and what MLPs can participate with building.
Additionally, my colleagues at CBRE Clarion wrote a very interesting paper discussing the different options that institutional investors have when it comes to gaining exposure to investments in infrastructure (direct investment, private equity investment or public market investment). The paper makes a strong case for investment in infrastructure in the public markets, which just so happens to be our business.
At the NAPTP conference this week, there were many sets of eyes that glazed over when I started to explain my role as part of a larger listed infrastructure investment team here at CBRE Clarion. There seemed to be little recognition of what global listed infrastructure means, and this paper provides an explanation as well as the chart below (which you can click to enlarge) illustrating how we look at the investment universe of listed infrastructure. MLPs are a meaningful piece of that global pie, but we look beyond just MLPs in our portfolio.
I share both of these reports with you in hopes that there will be greater recognition of the strategy in which we are engaged through our infrastructure team at CBRE Clarion, but also to highlight how important an understanding of the global energy market will be to the future of MLP returns.
MLPs are expanding beyond our borders, and MLP capital will increasingly be sourced there as well. Investor recognition of the global role MLPs will play is helping foreign investors get comfortable with launching investment products in Asia that provide access to MLPs. Also, as PWC’s Rob Baldwin highlighted this week at the NAPTP, 5.5% of MLP units were owned by foreign citizens at the end of 2013.
More notes on the NAPTP MLP conference to come in my weekly post, but for now enjoy these reports as you sip daiquiris on whatever beach you prefer on this long weekend.