Recent activity in the MLP energy infrastructure space is showing a lessening of the correlation between MLPs and the price of oil. This correlation with oil created a dramatic drop in the Alerian MLP index, from August of 2014 into the middle of February this year, when the prevailing thinking on Wall Street was that MLPs were a surrogate for oil.
What has changed is that investors are starting to realize that MLPs are more than just about the price of oil. They are beginning to recognize that these are operating business involved in the ongoing and necessary transportation, distribution, fractionation, and storage of natural gas, natural gas liquids, and oil. Cheap oil only increases the use of oil. As one of my baby boomer clients noted, RV sales are going through the roof as baby boomers set across the country in their gas guzzling Winnebagos because gas is cheap. That means it would only be natural to process and transport more refined products, not less.
In addition to that, the use of natural gas is rising as a fuel for electrical generation. Natural gas is rapidly replacing coal and nuclear, as exports to Mexico continually increase, and LNG exports build to Europe and Asia. Coming up is a dramatic increase in the use of ethane as billion dollar petrochemical plants get built and placed into service in the Southeast, Northeast near Pittsburgh, and all the way up in Ontario, Canada. Business is looking better for MLPs.
-Dave