Why Is Plains All American Pipeline Down So Much?

Dividend Stream profile picture
Dividend Stream
14.38K Followers

Summary

  • Current prices do not support the ambitious oil production growth plans of North American E&P companies.
  • As an oil pipeline partnership, Plains could be affected if crude production levels off or declines.
  • Partnership is focused on the two lowest-cost shale plays in North America which gives Plains some insulation.

The conventional wisdom is that pipeline MLPs should be immune to commodity swings because of partnerships' minimal direct exposure to oil prices. Instead, these pipeline 'toll roads,' which are indeed the most cost-effective way to transport crude oil, are normally immune to usual price volatility in oil. However, the recent drop in West Texas Intermediate, from over $100 to around $65 within a few short months is likely to alter the face of oil production in North America if prices stay in this range for a year or more, and this will affect Plains' pipeline business.

This is why most of the North American oil and associated gas pipelines are getting beat up right here. For example, since October 1st, leading crude pipeline Plains All-American (NASDAQ:PAA) is down by 14.4%. At the same time, leading NGL pipeline Enterprise Product Partners is down only 7.5% over the same period, and leading dry gas pipeline Kinder Morgan Inc (KMI) is actually up since October 1.

SharpCharts

While Plains' 14.4% decline is nothing compared to some of the upstream MLPs and offshore rig lessors, investors in midstream MLPs are not accustomed to such price volatility. Plains All-American's extensive crude oil transportation network is the midstream backbone of the North American shale oil and tar sands revolutions.

Unfortunately, with oil prices where they are right now, the meteoric rise of the North American crude oil complex is over. This sharp leveling-off of energy activity will have some effect on Plains All-American, and the market is trying to compensate for that right now. This article will take a look at Plains' infrastructure and how it might be impacted by a dramatic slowdown in energy activity in North America.

Courtesy of Plains All-American Investor Relations

Above is a map of Plains' operations. Just by looking at the map

This article was written by

Dividend Stream profile picture
14.38K Followers
Dividend Stream is a contributing columnist for Real Money and TheStreet.com. He has been writing for Seeking Alpha since 2012.

Disclosure: The author is long KMI. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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