While oil markets will start rebalancing after a slump next year, an oversupply in natural gas won't disappear until the end of the decade, the IEA warned, slashing its gas demand outlook for a fourth straight year.
"Slower generation growth, rock-bottom coal prices and robust deployment of renewables constrain gas' ability to grow faster in today's low-price environment."
Global consumption will expand by 1.5% annually between 2015-2021, down from last year's forecast of 2% growth between 2014-2020.
Bernstein analysts initiate several midstream and pipeline MLPs, estimating that less than 7% of MLPs $70B in service revenues are at risk in a $40/bbl oil environment; oil production volumes will likely fall this year, but midstream pipeline plays will mostly be unaffected, the firm says.
On the other hand, the firm sees less long-term upside to MLPs than many investors expect, as after next year existing and in-progress gas and crude infrastructure will be sufficient to handle forward production through 2025.
Bernstein prefers Enterprise Products Partners (NYSE:EPD) because of its significant committed market-based projects, and Williams Partners (NYSE:WPZ) and Williams Cos. (NYSE:WMB) on the belief they have been unfairly punished due to expected dividend cuts; the firm rates EPD, WPZ and WMB at Outperform.
Bernstein ranks Kinder Morgan (NYSE:KMI), Spectra Energy (NYSE:SE), Spectra Energy Partners (NYSE:SEP), Energy Transfer Partners (NYSE:ETP), Energy Transfer Equity (NYSE:ETE), Cheniere Energy (NYSEMKT:LNG) and Cheniere Energy Partners (NYSEMKT:CQP) at Market Perform; the only name rated Underperform is Sunoco Logistics (NYSE:SXL).
A gas explosion that burned for hours outside Pittsburgh took place on a pipeline that had been inspected in 2012 with "no areas of concern" found.
Texas Eastern Transmission -- a division of Spectra Energy (NYSE:SE) -- says the pipeline was 30 inches in diameter, built in 1981.
An explosion this morning traced to the pipeline created a fireball that officials say destroyed a home, damaged at least three others and burned a homeowner. People in homes and other buildings within a quarter mile of the explosion were evacuated.
The Texas Eastern pipeline is a 9,096-mile pipeline connecting the Gulf Coast with high-demand markets in the Northeast.
The explosion today disrupted shipments to the eastern U.S. Natural gas futures were up 4.8% amid concerns of supply shortfalls.
While energy supply and demand dynamics may be about to start improving, the benefits are not yet evident in the profit picture for midstream MLPs, Wunderlich's Jeff Birnbaum writes, as declining onshore crude production will continue to challenge midstream operators.
E&P guidance and more recent EIA data indicates more significant declines may come in 2016 than expected several months ago, according to Birnbaum.
Among individual MLPs, the analyst expects Plains All American (PAA +2.3%) to use its scale, downstream operations and lack of 2016 financing needs as weapons to take share from smaller competitors, and sees a rebound in Gulf of Mexico production as a positive for Genesis Energy (GEL +5.8%).
With additional liquified petroleum gas export capacity online in 2016 and the prospect for a more normalized 2016-17 winter, the propane market should tighten relative to a sloppy 2015, which Birnbaum believes will benefit Enterprise Products Partners (EPD +3.5%), Targa Resources (TRGP +1.1%), DCP Midstream Partners (DPM +6.8%) and NGL Energy Partners (NGL -0.1%).
Devastation in the oil patch has caused large losses for investors in MLPs, and in some cases increased their tax burden, NYT's Gretchen Morgenson explained in a weekend analysis.
Some upstream energy MLPs are being forced to restructure their debts to stave off bankruptcy, and when they do, MLP owners must pay income taxes on their share of debt forgiven by creditors, even though unitholders received no actual income as a result of the restructuring; partnership tax expert Robert Willens told Morgenson that a lot of upstream MLP investors will be surprised by such a tax bill in the coming years.
Linn Energy (NASDAQ:LINE) was discussed in the article as a case in point: As part of its November restructuring, creditors forgave $1B in debt, which will trigger taxes to its investors, and more restructuring likely is on the way.
Most of the more widely-held midstream MLPs are holding up, so this particular tax hit is not a risk, Barron's Amey Stone notes, but even some midstream MLPs could need to restructure if energy prices stay low for a long time.
Over the past 90 days, 20 (or 80%) of the 25 worst performing exchange-traded products are ETFs or ETNs related to oil and natural gas, and nine of those 20 products are dedicated MLPs, a Benzinga article notes signs of investors making contrarian moves in MLP ETFs.
"After record net outflows in MLP's in November/December 2015, UBS Retail has turned net buyers in 2016, with February on pace for the largest month of net inflows in MLP's we have ever recorded," says Rareview Macro's Neil Azous, citing data from UBS Electronic Trading.
Less than a month after redeeming two MLP ETNs, UBS introduced two new, double-leveraged MLP ETNs earlier this week.
The MLP sector needs to "absorb more pain" before it can represent a "compelling investment," Hedgeye's Kevin Kaiser said in a Barron's weekend profile of the controversial analyst, adding that the "pain" can come in but one form: a reduction in distributions that investors cherish.
The longtime MLP bear disagrees with the analysts and MLP investors who think the sector is deeply undervalued now that the benchmark Alerian MLP index is down 45%, countering that “we’re in the early innings of the MLP down-cycle. We had a 15-year up-cycle, and now we’re a year and a half into the downturn.”
Kaiser first gained Wall Street attention as the only bear among more than 20 analysts that covered Kinder Morgan (NYSE:KMI); while most of the damage has been done, Kaiser thinks KMI could fall further, to below $10, as he sees KMI still overleveraged with $41B of net debt, more than 5x annual cash flow.
On Linn Energy (LINE, LNCO) and Chesapeake Energy (NYSE:CHK), "we said those stocks could be going to zero, and I think we’re going to be right," Kaiser adds.
In addition to ETE and Energy Transfer Partners (ETP -22.3%), Baird downgrades EnLink Midstream (ENLC -21.9%), ONEOK Partners (OKS -6%), Plains All American (PAA -11%) and Plains GP Holdings (PAGP -14%) to Underperform, and cuts Antero Midstream (AM +1.3%), ONEOK (OKE -9.4%) and Tallgrass Energy GP (TEGP -13.1%) to Neutral from Outperform.
The slide in MLPs accelerates as crude oil prices still show no signs of bottoming; the Alerian MLP ETF (AMLP -8%) has plunged as much as 10% today and is down nearly 30% YTD.
While acknowledging the obviously difficult upcoming Q4 earnings season, Wunderlich's Jeff Birnbaum sees Enterprise Products Partners (EPD -7.6%) and Magellan Midstream Partners (MMP -7.9%) having the best visibility into cash flows and limited counterparty risk; while the analyst lowers estimates for the two, he says each team has a strong balance sheet with which it can attempt to take advantage of market stresses and advance its footprint along the Gulf Coast.
Birnbaum downgrades Western Gas Equity Partners (WGP -20.8%), citing a reduced distribution growth outlook and ongoing premium valuation, and American Midstream Partners (AMID -12%), believing a distribution cut is more likely with the latest move lower in the WTI futures curve.
The firm's list includes eight names with the most leverage - all at levels of 4.7x EBITDA or greater: AMID, APLP, CCLP, CEQP, ETE, ETP, WMB and WPZ.
Its top picks include Enterprise Products Partners (NYSE:EPD), Magellan Midstream Partners (NYSE:MMP) and Spectra Energy Partners (NYSE:SEP), for their combination of predominantly fee-based cash flows, minimal volume risk, modest financing needs and conservative balance sheets.
Energy MLPs open mostly higher as Plains All American Pipeline (PAA +8.5%) says it is keeping its distribution stable and selling $1.5B in convertible preferred units (mostly to P-E firms) to cover its financing needs through at least this year and some of next; PAA and partner Plains GP (PAGP +2.6%) open with strong gains.
D.A. Davidson analyst Poe Fratt thinks MLPs will begin to recover this year despite a rough start, pointing to the sector’s 9% dividend yield - well above the 20-year average - as a sign downside risk seems limited; his top two selections in the group are Enterprise Products Partners (EPD -2.6%), which raised its distribution last week, and Magellan Midstream Partners (MMP -0.2%).
Energy sector MLPs are rallying, likely reacting to positive guidance given yesterday by Oneok (OKE +6.2%; OKS +9.7%).
Baird analysts say ONEOK’s “robust” guidance slightly exceeded their expectations for “healthy coverage” on next year's payouts.
Tudor Pickering says ONEOK's dividend outlook may have positive implications for Enable Midstream Partners (ENBL +26.6%), as investors have been skeptical that the MLP will be able to hold its distribution in 2016.
Meanwhile, Morgan Stanley says it is still too early to buy the MLPs amid concerns about bankruptcies coming in the energy sector, noting that many yield-seeking investors are very overweight the group, which could mean substantial selling may await.
The Alerian MLP ETF (NYSEARCA:AMLP), which tracks the benchmark index, fell another 2.5% in today's trade, sending its YTD losses past 40%.
Research firm Valuentum, which is critical of the MLP structure because of its reliance on new infusions of growth capital to make lofty payouts to investors, believes TGP is one of many more MLPs that will be forced to cut distributions; it points to Energy Transfer Equity (NYSE:ETE) and Plains All American (NYSE:PAA) as prominent candidates for cuts.
U.S. natural gas prices have collapsed to their lowest level in almost 14 years, dropping 4.4% to $1.901 per million British thermal units, as unseasonally warm weather on the U.S east coast cuts demand for the fuel.
NYC is expected to see temperatures as high as 63 degrees on Monday, at a time of year when fleece-lined boots are more common attire than t-shirts.
Crude prices also started the week on the back foot. The cost per barrel has now fallen below $35.
Widespread MLP distribution cuts are "possible but unlikely," Fitch Ratings says, as most MLPs are not as highly leveraged as Kinder Morgan and do not have such large capital funding requirements.
But some analysts are coming out with MLPs they say are in need of capital market funding options; Morningstar's Josh Peters, for example, "would be worried" about Plains All American Pipeline (NYSE:PAA) and Plains GP Holdings (NYSE:PAGP), as well as ONEOK (NYSE:OKE) and ONEOK Partners (NYSE:OKS).
At the same time, Peters says he is "very comfortable and very confident" in Magellan Midstream Partners (NYSE:MMP), Spectra Energy (NYSE:SE), Spectra Energy Partners (NYSE:SEP) and Enterprise Products Partners (NYSE:EPD) - all of which were much more conservative than necessary in the boom days and are now set to benefit in the current environment.