ETFs/ETNs to play the MLP and global energy infrastructure theme

Mar 9th, 2012 | By | Category: Commodities

Modern pipelines are generally the most economical way of transporting large quantities of oil and gas overland from its extraction point to refineries, storage and consumption areas.

ETFs/ETNs to play the MLP and global energy infrastructure theme

With the development of unconventional energy resources, billions of dollars will be spent on new pipeline infrastructure.

Regardless of the current tentative global economic situation, demand for oil and gas is strong and is likely to remain so in coming decades.

With the rapid development of unconventional oil and gas resources (shale gas, oil sands etc), the sources of North America’s energy supply are shifting. Similar shifts are occurring elsewhere around the world (e.g. LNG potential in Japan).

As these dynamics change, billions of investment dollars will be spent on new pipeline infrastructure to connect unconventional energy sources to consumption centres.

For example, once fully completed (including its controversial extension), the Keystone pipeline, which will connect the Athabasca oil sands in North Eastern Alberta, Canada, to multiple destinations in the United States, will have cost over $12 billion.

According to a recent report by Visiongain, a London-based business intelligence and analysis firm, the global oil and gas pipelines market – already worth over $60bn/year – is expected to grow strongly over the next decade. The growth in oil and gas pipelines expenditure won’t just be fuelled by the boom in unconventional energy in the US and Canada, but also by the emerging countries of China, Brazil, Venezuela and Russia.


DB X-Trackers S&P Global Infrastructure ETF (XSGI)

– Tracks the S&P Global Infrastructure Index
providing exposure to 75 infrastructure companies
from around the world

– Includes companies involved in oil and gas storage
and transportation. Pipeline builders TransCanada,
Enbridge and Spectra Energy are all top-ten holdings.

– Swap-based replication, thereby minimising tracking
error, with full transparency to collateral holdings

– UCITS compliant, London listed, UK Distributor Status,
eligible for ISAs and SIPPs, TER of just 0.60%

Of course, the overall spending on the oil and gas pipelines systems will depend on the future oil price developments, the level of natural gas demand and the expansion of unconventional oil and gas activity, but demand for energy is expected to rise significantly during the in the next ten years, despite the fact that in the short run the growth will be hampered by the eurozone crisis and slowing economic growth in emerging markets.

And though the industry will be faced with the restraints of a weak global economy, political instability in certain parts of the world, the oil and gas pipelines market is likely to provide substantial opportunities for investors.

Two ways investors can access this opportunity is via global infrastructure ETFs and MLP (Master Limited Partnerships) ETFs/ETNs.

The global infrastructure industry encompasses companies principally engaged in management, ownership and operation of infrastructure and utility assets. Within this includes companies involved in the design, construction and maintenance of oil and gas pipeline and storage facilities – companies such as TransCanada and Enbridge.

Infrastructure in general is often irreplaceable in the short term and benefits from inelastic demand. Moreover, the global trend towards public/private partnerships and privatisation of traditionally public funded assets is driving rapid growth of industry, making the sector attractive to investors.

Energy-focused MLPs are publicly traded limited or general partnership interests in mid-stream energy infrastructure assets in North America.  They provide investors with exposure to essential energy infrastructure assets, such as oil and gas pipelines, and deliver a regular and dependable high stream of income.

MLPs offer other notable benefits. First, MLP returns have exhibited insignificant correlation with the S&P 500 Index over past two decades. This is a highly useful characteristic for portfolio diversification and risk reduction. Second, MLP-type assets typically command regional monopoly footprints and operate toll-based business models with inflation hedges built into their contracts. This makes them extremely beneficial in high inflationary environments, such as now.

Following is a list of energy infrastructure-related ETPs, with a specific focus on MLP ETF/ETNs and Global Infrastructure ETFs:

DB X-Trackers S&P Global Infrastructure ETF (LON: XSGI)
(XSGI is also listed on Boerse Stuttgart, Deutsche Börse/Xetra, Borsa Italiana and SIX Swiss Exchange)

SPDR FTSE/Macquarie Global Infrastructure 100 ETF (NYSE: GII)

SPDR S&P Oil & Gas Equipment & Services ETF (NYSE: XES)


UBS ETRACS Alerian MLP Infrastructure ETN (NYSE: MLPI)



Credit Suisse MLP Index ETN (NYSE: MLPN)

JPMorgan Alerian MLP Index ETN (NYSE: AMJ)

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