Energy Infrastructure and Household Benefit

The prosperity of the American economy is in many ways dependent on a robust national energy infrastructure that moves energy resources from the production fields to our communities. This infrastructure is a complex network of pipelines, storage facilities, and refining plants through which oil, natural gas, natural gas liquids, and other refined products fuel the country’s economic engine.

And with the recent announcement that the United States this year will become the world’s largest producer of oil and natural gas, it has never been more critical to ensure that investments in energy infrastructure remain strong.

One of the most visible benefits of an expansive infrastructure network can be seen in our strengthening manufacturing and chemicals industries. A recent study commissioned by the National Association of Manufacturers found that the full development and utilization of unconventional oil and gas resources could result in 1 million new manufacturing jobs by 2025.

In addition, an IHS study concluded that by that same year, America’s unconventional oil and natural gas will help lead to as much as $100 billion in new investment in U.S. chemical and plastics facilities, with industry capacity growing by nearly 89 million tons.

These developments are only a few of the “game changing” benefits that enhanced energy production and infrastructure construction provide the U.S. in terms of an economic competitive edge. But what about average Americans? Can they benefit from the energy renaissance that is taking place?

The short answer is yes. Contrary to popular belief or political sound bites, millions of Americans are sharing in the benefits that come from domestic energy production and a growing energy transportation network. A key reason is investments in master limited partnerships (MLPs), which are businesses primarily engaged in energy infrastructure activities.

These businesses raise capital from a broad base of investors by utilizing public equity and debt markets. The investors, known as unitholders as opposed to shareholders in a publicly-traded corporation, own a unit of the MLP’s business and are eligible to receive quarterly cash distributions. It is worth noting that the growth the country is seeing in the MLP marketplace is tied directly to the growing demand for energy and its availability from newly developed sources, thus providing individual investors with a reliable income source in return for participating in the build-out of the country’s energy infrastructure. It’s a win-win scenario for individual American households and our larger U.S. economy.

Furthermore, recent industry surveys indicate that the majority of MLP investors - up to 80% - are individuals. Of these investors, roughly 75% are over the age of 50. These investments are particularly attractive to fixed income investors (primarily seniors) because MLPs are required under their partnership agreements to distribute all of their available operating cash flow each quarter, providing a reliable income stream for investors more concerned about steady growth than dramatic windfalls.

And if you look across the horizon of America’s energy landscape, placing a premium on steady investment in, and attractive returns from, energy infrastructure is definitely worthwhile. According to the INGAA Foundation, it is estimated that over a 25 year period (2011-2035), North America will need to invest $251 billion in related infrastructure to properly leverage new oil and natural gas discoveries.

Those investments are being made to a large extent by MLPs. From 2007 through 2012, the largest MLPs have made non-acquisition capital investments of approximately $88 billion, many of them in the shale-play areas around the United States that are driving production, but sometimes lack adequate infrastructure. To meet our energy needs, this year MLP businesses are expected to invest another $25 billion, bringing total investment to approximately $113 billion.

The result of this critical investment can be seen in the more than 300,000 miles of pipelines that traverse the U.S. and the rapid response to meet the demand for energy infrastructure investment. This foretells a tremendously bright future for our domestic infrastructure sector and for all Americans who depend on reliable and affordable energy to power their homes, businesses, and communities.

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