Still, if US demand were to decline, here are three facts to consider:
“Price” in the Price x Volume Equation. MLPs that operate interstate liquids pipelines, including refined product pipelines, are allowed by the Federal Energy Regulatory Commission (FERC) to increase tariffs each year based on inflation. Given this, even if the volume of crude oil transported were to go down slightly, the fees for moving product will generally trend upward overtime due to inflation, offsetting small differences in volume.
Refined Product Exports. Exports of refined products are almost six times what they were in the 80s. If US consumption were to decline, it’s possible that exports to emerging markets could offset some of the potential drop in demand.
Diversification. Most of the MLPs that operate refined product pipelines also have other sources of income. These other sources may be from refined product storage where the business model is based on contracted capacity, or crude oil pipelines, or crude oil storage.
We are often asked to compare the lifespan of the MLP asset class to a baseball game. Investors that fear the emergence of increased fuel efficiency and non-traditional sources of energy worry we’ve creeped into the 8th inning. However, remember that an efficient use of fuel is not a lack of use of fuel. Given all the possibilities throughout our world and the fact that over $500 billion of energy infrastructure still needs to be built within the US, we could be in an endless game.