Three Trump Orders, Three New Winners
With a governmental change of control, there’s a new set of winners and losers. Whether it was healthcare stocks and alternative energy under President Obama, defense and energy stocks under President Bush, etc., a government’s agenda sets the tone for the markets. On Tuesday, President Trump created one of what I think will be a long line of new winners with a few strokes of his pen.
Three executive orders created what could create a new bull market for master limited partnerships. One could revive construction of the Keystone XL pipeline, which was effectively killed by President Obama in 2015. Another cleared the way for construction to continue on the Dakota Access pipelines, which was halted by the U.S. Army Corps of Engineers. The third looks to overhaul the permitting process pipelines are subjected to by streamlining environmental regulations.
MLPs like Energy Transfer Partners (NYSE: ETP) and Sunoco Logistics Partners (NYSE: SXL), which are partners in the Dakota Access project, and companies like TransCanada (NYSE: TRP), which are in on Keystone XL, are the most obvious beneficiaries of the orders. Since they’re effectively toll takers, completing those pipelines will boost the flows of oil and gas that those infrastructure builders can collect on. In this case though, the benefits will also flow upstream.
The biggest stumbling block for America’s energy renaissance has been what to do with all the oil and gas once it’s out of the ground. That’s especially true in the Bakken field in North Dakota, where there just isn’t enough pipeline access to move all that liquid energy underground.
Moving all those liquids by truck is prohibitively expensive; there’s the obvious capacity issue and the cost of the diesel used by the trucks themselves. You just can’t move enough volume by truck to make it remotely profitable. Trains help, but there are still limitations. Then there’s the obvious safety issue, with derailments causing massive fires and environmental damage. In 2013, as trains were getting bigger and towing more tanker cars, more crude oil was spilled in rail accidents then in the previous 37 years.
While even pipelines can only move so much oil and liquefied natural gas at a time, they can basically run at full capacity, 24 hours a day, 365 days a year and go a long way towards nullifying the capacity problem. It’s also much cheaper, costing about $5 per barrel of energy equivalent versus between $10 to $15 via train. And while pipeline accidents do happen, they are rarer then train accidents and occur most often in relatively isolated areas, at least minimizing damage.
By making it easier to build pipelines, President Trump isn’t just giving midstream, toll-taking MLPs a boost, though they’re obviously beneficiaries. If you’re interested in making a diversified bet on that group as a whole, the ALPS Alerian MLP ETF (NYSE: AMLP) is a good way to do that. It doesn’t just end there, though.
He’s giving our entire energy industry a leg up since greater pipeline capacity will encourage producers to pump more oil and gas, boosting their bottom lines. An easier process of building pipelines will also encourage them to expand over the long haul, allowing them to push into areas that if not exactly inaccessible, would be difficult to move much production out of. So don’t be afraid to look upstream, either.
Whether or not you agree with the group of winners a new administration creates, they’re still there and you can still profit.