MLPs Building Out Rail Capacity: What Was Initially Viewed as a Short-Term Answer to Big Increases in Volumes is Now a Longer-Term Option
In the following excerpt from the Oil & Gas: Master Limited Partnerships Report, an expert analyst discusses the outlook for the sector for investors:
TWST: Were there any other themes or trends that stick out for you?
Mr. Katzenberg: The one other theme of note was the expansion of rail capacity. I know with MLPs most people think pipeline, but a lot of these MLPs have been building out rail capacity over the last couple of years.
Initially when this started, it was viewed as a short-term answer to the big increase in volumes that were coming on in all these shale plays, especially the Bakken. However, over this fourth-quarter conference call season, what stood out was that a lot of these companies are looking at rail as being a longer-term option, and something that we'll continue to see over the next 10 years.
That was a surprise to me and to a lot of the investors I've spoken with. The obvious reason for it is that instead of having to sign long-term contracts with a pipeline, the producers can enter into short-term contracts and move their crude to whatever regions are price advantaged. So we're seeing companies like Enbridge (EEP); Plains I mentioned made an acquisition recently; and Kinder (KMP) focus more on the upside from these rail projects.