Buy Midstream Companies for More Than Just Income

File:Oil storage tanks, ESSO Oil Storage Depot, Purfleet - - 1594011.jpg

Source: Wikimedia Commons

The U.S. energy boom is under way, and investors are awestruck by the explosive growth coming from E&P players. But in order for those E&P players to see such high levels of growth they need help from midstream companies, which are also focused on growth.

Pipelines are profit streams
Down in Texas Enterprise Products Partners  is currently building the Seaway and Eagle Ford JV pipelines that will transport crude oil to refiners. While Enterprise Products Partners' cash flow will increase significantly because of these projects, it also is aiming to compound that growth with an increase in storage capacity.

Enterprise Products Partners plans on expanding its storage capacity at its ECHO storage terminal in Houston by 4 million barrels. This allows Enterprise Products Partners to capitalize on the U.S. energy boom through multiple methods, pipeline fees, and fees related to storing crude oil.

Enterprise Products Partners is banking on more than just crude for growth; it also is going to help out NGL producers. Enterprise Products Partners is going to make another LPG (liquefied petroleum gas) export terminal to allow NGL producers to get good prices for their product, while making a profit of course.

The plant will have the capacity to move 6 million-6.5 million barrels of LPG a month by the end of 2015, which is when the plant should be up and operational. LPG is primarily used as fuel in heating appliances and vehicles, and is made up of propane and butane. This will allow NGL producers to share their product with the world and boost Enterprise Products Partners' cash flow.

Enterprise Products Partners isn't the only midstream company seeking growth -- Spectra Energy is also investing for tomorrow.

"OPEN" up
Spectra Energy is going to link the abundant amount of resources in the Marcellus and Utica to Ohio and Texas. The OPEN Project is going to supply (through pipelines) 550 million cubic feet of natural gas a day to customers in Ohio and markets on the Gulf Coast, and is expected to come online in the second half of 2015.

"AIM" for cash flow growth
Spectra isn't banking on just one project to find cash flow growth. The AIM Project is going to increase natural gas transportation capacity by 300 mmcf/d, which will come online sometime in the second half of 2016. The purpose of AIM is to move gas from the Marcellus to New England. The additional capacity already has three 15-year contracts, which will provide Spectra with stable cash flow for years.

Spectra is trying to alleviate transportation constraints in several key markets, which helps out not only E&P companies but also Spectra. Spectra can turn the additional cash flow into a larger payout and invest in future growth.

MarkWest Energy Partners also has big growth plans for the Marcellus.

More than double
MarkWest plans on more than doubling its natural gas processing capacity over the next few years. Currently MarkWest has 1.6 billion cf/d of processing capacity, but by the end of the year MarkWest sees that increasing to over 2 billion cf/d, and further out MarkWest sees production hitting 3.5 billion cf/d around 2015.

This is huge growth for a midstream company and is going to allow MarkWest to invest the additional cash flow to convert and build a NGL pipeline. MarkWest is working with Kinder Morgan Energy Partners to convert part of the Tennessee Gas Pipeline to be able to transport rich gas (like NGLs) produced in Ohio. The pipeline will run to a JV processing complex with the capacity to process 200 mmcf/d, with the potential to increase that up to 1 billion cf/d. 

From the processing complex a JV pipeline is being made to deliver gas from the complex to Louisiana, which will initially have the capacity to transport 200,000 bpd. As market conditions dictate capacity could be increased by 200,000 bpd to 400,000 bpd.

Kinder Morgan Energy Partners and MarkWest are working together to deliver liquid-rich gas produced in northern Ohio to Louisiana. This enables E&P players to find a buyer for their NGL while boosting Kinder Morgan Energy Partners' and MarkWest Energy Partners' cash flow.

Final thoughts
E&P players are leading the charge toward U.S. energy independence, but they can't do it all by themselves. They need the necessary infrastructure to move, store, and process the crude, dry gas, and NGL they pump out of the ground. Midstream companies are glad to oblige and stand to reap huge benefits in the form of strong growth for decades.

More ways to profit from the American energy boom
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


The article Buy Midstream Companies for More Than Just Income originally appeared on

Callum Turcan has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners L.P. and Spectra Energy. 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story