MLPs

Master Limited Partnerships   Y. Siegel
Credit Suisse Take on MLPs: NGLs - From Supply Glut to Supply Shortage 212 325 8462
NGL Update Call with Industry Expert Peter Fasullo from En*Vantage: Key takeaways: 1) "The NGL business has never been so good". NGL prices are firm, frac spreads are at record levels and the growth in NGL production is being more than matched by robust petrochemical demand. 2) NGLs extraction is expected to grow by 500,000 bpd (23%) between now and 2015-2020. 3) Ethane extraction (excluding Marcellus) should grow even faster over this time frame. 4) Ethane demand is increasing because it is a cheaper feedstock for ethylene steam crackers. 5) Ethane demand is likely to grow by another 100,000 bpd over the next two years as the ethylene industry converts more furnaces and debottlenecks. 6) Canada is likely to import as much as 90,000 bpd of ethane over the next 10 years. 7) At least 85,000 bpd of Marcellus ethane will be required in the Gulf Coast to satisfy demand. 8) Short-term, planned and unplanned ethylene plant downtime can impact NGL fundamentals. Please contact your Credit Suisse salesperson for a copy of the slides and transcript.

Our Take: We also hold a positive outlook for NGLs and the MLPs that will benefit from building the requisite NGL infrastructure. The following MLPs within our universe have significant NGL exposure. EPD, ETE/ETP, DPM and NGLS are rated Outperform, TRGP and OKS are rated Neutral.

Our Take on EPD's Sale of ETE Units: ETE represents a non-core holding for EPD and we would expect EPD to continue to exit its remaining ownership of 34.5 million units. We maintain our Outperform rating on ETE. Although EPD's sale may create a perceived overhang on ETE's units, we view ETE's leverage to distribution growth and increasing units outstanding at ETP will drive strong distribution growth (9.9% 3-year CAGR).

Takeaways from the AGA Conference: Last week we attended the American Gas Association Financial Forum in Orlando. We had one-on-one/small group meetings with eight companies including CNP, NI, AGL, UGI, SE, MDU, TRP and ENB. Common themes included the continued growth opportunity tied to shale and unconventional resource plays, weakness in natural gas storage fundamentals and the importance of MLPs to energy infrastructure investment. See the full report for key takeaways.

Gross Processing Margins Down Slightly: Margins closed the week at $1.00/gal, down from $1.02/gal the previous week, driven by lower crude oil and NGL prices.

MLPs Up Last Week: The Alerian and Cushing 30 MLP Indices closed the week up 1.4% and 1.1% respectively vs. loss of 0.8% and loss of 0.3% for the Russell 2000 and S&P 500 indices.