Kinder Morgan Energy Partners LP (NYSE:KMP) is the largest U.S. pipeline company and, in its latest quarter, saw net income increase three times to $783 million from $206 million on a year-to-year basis. The company is deriving incremental benefits from its pipeline system with its recent purchase of Tennessee Gas Pipeline and the partial acquisition of El Paso Natural Gas Co. For the future, Kinder Morgan Energy Partners LP (NYSE:KMP) has entered into a long-term contract to support the expansion of Sweeny Lateral pipeline. The expansion is expected to increase capacity to 100,000 barrels per day. Environmentalists and potential hazards from oil spills have halted projects on multiple fronts for the company and it seems that Kinder Morgan Energy Partners LP (NYSE:KMP) will have to settle a lot of issues in the courtroom before it can continue with its expansion of the oil sands pipeline system.
While Enbridge Energy Partners, L.P. (NYSE:EEP) has similar ideas for expanding and capitalizing on the present demand, things have been less than ideal for the Calgary based company. In its latest quarter estimates, the company reported adjusted earnings of $0.18 per unit, missing analysts’ estimates of $0.26. The quarterly figure also deteriorated 43.8% from the previous year’s profit of $0.32. Enbridge Energy Partners, L.P. (NYSE:EEP)’s growth is highly dependent upon organic growth, i.e., pipelines. The company has ambitious goals as it aims to build a pipeline whose capacity would eclipse even TransCanada (NYSE:TRP)’s proposed Keystone XL. However, as with Kinder Morgan Energy Partners LP (NYSE:KMP), there are legal and environmental hurdles which currently bar the company from moving forward.
Enterprise Products Partners L.P. (NYSE:EPD) controls 50,700 miles of natural gas, NGL crude oil, petrochemicals and refined products pipeline. The company plans to invest $7.2 billion into capital expansion projects. A major part of this capital expenditure will be invested in the current year, because an increase in demand from the petrochemical industry seems to be the main factor for company growth. The company can benefit greatly from increased production of natural gas, NGL and crude oil from the shale plays. Enterprise Products Partners L.P. (NYSE:EPD) delivers a very impressive dividend yield at 4.4% when compared to the yield of the company’s peers (1-2%). In fact, the 4.4% yield is 2.5% above the 10-year treasury rate (1.9%), in line with the historical MLP spread over the 10-year.
Potential risks
I think the biggest concerns for any investor in MLPs are related to opposition to pipeline construction, commodity risk and declines in demand. Commodity risk and declines in demand affect the industry across the board, which leaves one with the threat of opposition to pipeline construction.
Enbridge Energy Partners, L.P. (NYSE:EEP) has a history of confrontations with environmental agencies because of its countless pipeline spills throughout its history. One member of Congress also describe the company as follows: “Enbridge is fast becoming to the Midwest what BP was to the Gulf of Mexico.” In 2012 alone, the company paid $134 million for its Line 6B leak. The most recent problem that the company is facing with environmentalists is with the proposed upgradation of the existing pipeline from Alberta to Wisconsin. The upgradation will see the pipeline double its capacity to 800,000 barrels per day, and there are grave concerns about the threat to the environment that this will pose. There is so much concern that the expansion faces an increasing risk of U.S. rejection as opposition to pipelines grows. Furthermore, the company faces stiff resistance for its Northern Gateway pipeline to the West Coast as well.
