Here’s a little statistic that will blow your mind: The combined pipeline mileage of the Kinder Morgan companies — Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR), Kinder Morgan Inc. (KMI) and El Paso Pipeline Partners (EPB) — totals about 80,000 miles.
To put that in perspective, the circumference of the Earth is only 24,901 miles. So, if all of Kinder Morgan’s pipelines were linked together end to end, they would wrap around the Earth a full three times … and there would still be enough left over to stretch from New York to Istanbul. (Alas, if only good Turkish hummus could be delivered by pipeline.)
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And again, that’s just the Kinder Morgan companies. Competitor Enterprise Products Partners (EPD), considered the bluest of blue chips by many MLP investors, has about 50,000 miles of pipelines.
Click to Enlarge All told, by U.S. government estimates, the United States contains 1.7 million miles of oil and gas pipeline infrastructure.
With all of this capacity, you might think that pipelines are a mature industry with little in the way of growth in front of them.
Nothing could be further from the truth.
You see, there is a problem with pipelines. Once built, they can’t really be moved. So when new oil and gas fields are developed, new infrastructure has to be put in place. And with the “fracking” boom still in the early innings, that means a lot more pipeline construction is … well, in the pipeline. Between now and 2035, the industry will need about 1,400 miles of new pipeline built every year.
This is a long way of saying that MLPs still have years of growth in front of them.
The easiest way to get exposure to the entire asset class is via the JP Morgan Alerian MLP ETN (AMJ). This ETN holds the largest and best diversified of the MLPs, and it pays a nice yield at 4.7%.
A Second Way to Play
Of course, MLPs are not the only way to play this new American energy boom. With natural gas still scraping along near its all-time lows, companies are increasingly using natural gas in lieu of more expensive gasoline.
Starting with the 2015 model year, General Motors (GM) will start selling “bi-fuel” versions of its Chevrolet Silverado and GMC Sierra pickup trucks that will run on both gasoline and compressed natural gas, and it also has plans to make an Impala that can be powered by CNG.
Some of America’s largest truck fleets are making the switch to natural gas, too. Lowe’s (LOW), Procter & Gamble (PG), Ryder (R), UPS (UPS) and FedEx (FDX) are all moving all or parts of their truck fleets to natural-gas-powered vehicles.
Investors wanting to play this macro trend should keep an eye on Clean Energy Fuels Corp (CLNE). Clean Energy is a major supplier of natural gas and liquefied natural gas to truck fleets, and it is also building out a network of service stations.
Notice I said “keep an eye on” and not “buy.” Clean Energy is on the right side of this macro trend, but the company is currently not profitable and the stock has drifted lower for most of 2013. It currently trades for about half its early 2012 high. Put this stock on your watch list and consider it for purchase when it looks to have started a new uptrend.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.
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