Energy partnerships are great ways to gain exposure to America’s energy boom. These newly unlocked sources of energy are helping many sectors of the economy, none more so than the companies that transport and move natural gas and oil. There are three small Master Limited Partnerships (MLPs) that are benefiting greatly from downstream applications of natural gas and processing.
Small but steady
Mark West has a pipeline system that is equivalent to capillaries moving crude oil and gas to larger pipelines owned by larger operators like Kinder Morgan Energy Partners LP (NYSE:KMP). In addition to moving the natural gas, Mark West filters the fossil fuel to increase its purity. Infractionation is the process in which you remove the contaminants and add value to natural gas.
Transformation location
Markwest Energy Partners LP (NYSE:MWE) owns premier locations for transporting and converting natural gas. The company has processing plants that convert natural gas from the fossil fuel in its raw state into both propane and methane. Mark West has pipelines, terminals and plants in the Haynesville shale basin located between Louisiana and Texas. This proximity to the Gulf Coast refineries and export shipping corridors gives Mark West the ability to convert its products and gives it a market place to sell its products.
Moving natural gas is a profitable business. Markwest Energy Partners LP (NYSE:MWE) is more heavily reliant on the conversion of natural gas into useful products and is not simply a mover of the resource like most other MLPs. Nearly 48% of its revenue is from toll-based gas transportation, and Mark West is looking to increase that steady stream of revenue to nearly 70% by 2015. It plans to do this by spending nearly $3.5 billion over the next three years. All of this hard work will pay off for management, as the company is expecting to grow revenue and distributions for unit holders by 9% to 10% per year for the next five years.
The middle child
Williams Partners L.P. (NYSE:WPZ) is one of the nation’s largest MLPs, valued at more than $20 billion with a distribution yield of 6.6%. Williams partners is a larger version of Markwest Energy Partners LP (NYSE:MWE), a $10 billion market-cap company, but is smaller than Kinder Morgan Energy Partners LP (NYSE:KMP), which has a $32 billion market cap. Williams has a larger stake in natural-gas storage and a substantial stake in natural gas to propane conversion. Williams Partners is expanding feverishly to capitalize on the natural-gas supply glut in this country.
Williams Partners is looking to grow its asset base while still maintaining the possibility of the acquisitions of smaller competitors in key markets. One of Williams’ largest projects in the works is its Bluegrass pipeline that will span Pennsylvania all the way to the Gulf Coast refineries and export terminals (pictured below). Capital projects like the Bluegrass pipeline are what will supply the projected 9% to 15% growth in revenue that Williams Partners L.P. (NYSE:WPZ) expects to see through 2016
Source: Williams Partners 2Q’13 Industry Review Charts
Natural gas liquids and future demand
Williams Partners L.P. (NYSE:WPZ) recently stated that by 2030 the US will need six more ethylene cracking plants to meet demand by 2025 vs. the current capital outlays that the industry has planned. As export terminals are brought online, the US will then be able to sell its abundant supply of gas to starved European countries at worldwide prices. This puts Williams Partners in a position to benefit from moving additional supply, processing the gas at depressed US prices, and then exporting it at higher global prices.
Completing these additional pipelines and processing plants will be no small task. Williams Partners L.P. (NYSE:WPZ) is spending nearly $12 billion in planned capital outlays and growth projects between now and 2015. The company has a goal of increasing the payout to unit holders by high single- or low double-digit growth for the next five years.
Chemical companies are taking notice of the refineries and cheap supply glut in the Gulf region and are in the process of building plants there. Both The Dow Chemical Company (NYSE:DOW) and DuPont are setting up facilities that use natural gas and natural-gas liquids as input sources.
Big leagues
Kinder Morgan Energy Partners is the biggest MLP in the country with more than 80,000 miles of pipelines. But as this company gets larger, it faces more scrutiny from anti-trust regulators. If its recent merger with El Paso Energy Partners is any indication, for Kinder Morgan Energy Partners LP (NYSE:KMP) to grow, it will have to do so in conjunction with asset divestments. This will surely limit the number and type of projects that it can pursue.
Kinder Moran has a distribution yield of 6.2% and will increase this amount as the prices that it charges to transport natural gas rise over time through its massive network of pipes and terminals. As increased demand from exportation increases volume, Kinder Morgan Energy Partners LP (NYSE:KMP) will be the largest beneficiary.
Foolish bottom line
Markwest Energy Partners LP (NYSE:MWE) and Williams Partners will provide investors with growth potential and a great way to boost the value of their portfolios. On the other hand, Kinder Morgan Energy Partners LP (NYSE:KMP) will supply a high-yielding steady growth investment for investors who are a little more risk adverse. All three of these companies operate in an industry with huge growth potential and pay out an above-average dividend yield.
Wes Patoka has a position in Kinder Morgan Energy Partners. The Motley Fool has no position in any of the stocks mentioned.
The article Master Limited Partnerships With Upside Potential originally appeared on Fool.com.
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