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Investing in Oil and Gas Infrastructure

Pipeline Stocks with a Kick

Written by Keith Kohl
Posted January 4, 2012

If the thought of holding on to a stock for more than a few months is daunting, then this is the perfect opportunity for you to take control...

Many of my friends fall into this category. Most of them believe beyond all doubt that holding an energy stock in this market is suicide.

Of course, that line of thinking has never made much sense to me.

And I always have to point out that these same friends are the ones being killed in this recession — not long-term energy investors.

Their silence is golden.

The reality is energy offers us a very profitable run over the long term...

Some of the safest investments available are found in building our future infrastructure.

The Long-Term Value in Infrastructure

Last year, nearly $550 billion was spent globally on oil and gas exploration and production.

According to Barclays Capital, that budget is going up another 10% in 2012.

We can't blame companies for shelling out more cash — especially considering a barrel of crude is still treading above $100/barrel:

small crude pricesclick to enlarge image

We'd be crazy not to take a closer look at pipeline stocks.

If we took all of the oil and gas pipelines crisscrossing the United States, we'd have enough pipe to circle the globe more than 100 times. That's about 2.5 million miles.

And as demand recovers, we can expect many more miles to be built:

small oil and gas demandclick to enlarge image

The Long-term Value in Infrastructure

So, just how are these infrastructure investments stacking up?

Several times this year, we've seen how the small-cap drillers have consistently crushed Big Oil's performance.

In fact, most of the major oil companies out there are now playing catch-up to what we've known for years, spending billions of dollars in new acquisitions to make up for that folly.

And those small caps aren't alone in their success:

ENB vs big oil

As you can see from the chart above, some of the biggest pipeline players — like Enbridge (NYSE: ENB) — are also putting the supermajors to shame.

Despite all the market volatility in 2011, Enbridge still delivered more than 36% gains to investors.

It's simply part of the long-term equation: There's a spur of investment happening to develop North America's oil and gas resources.

Even the latest delay in TransCanada's Keystone XL pipeline is just a bump in the road.

A new route is already being planned: the $13 billion project designed to transport 1.5 million barrels per day of Canadian oil to Cushing.

Meanwhile, more pipeline projects are being added to the mix...

Enterprise Products Partners (NYSE: EPD) and Genesis Energy LP (NYSE: GEL) just announced a 149-mile pipeline in the Gulf of Mexico.

It's the reason Kinder Morgan Energy Partners (NYSE: KMP) spent $38 billion to buy El Paso Corp., which controls a 43,000-mile interstate pipeline system.

Some of the MLPs (like Enbridge Energy Partners, L.P. (NYSE: EEP), which owns the Canadian portion of one of the largest crude oil pipeline systems in the world) currently offer a yield of 6.4%.

The bottom line here is the resurgence in our domestic oil and gas development will require a remarkable amount of new infrastructure to transport production to market.

And that's not just speculation...

Because if these investments aren't made now, we'll soon be back to begging the Saudi Kingdom for more oil. (Let's hope it won't come to that.)

What's more, we're not the only country fighting to meet future energy needs.

This energy race is only now starting to heat up. And later this week, I'll tell you exactly what — and who — we're up against.

Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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