Midstream merger and acquisition (M&A) activity remains brisk as the sector, overall, remains high on the list for return-hungry deal makers and investors. But the pace of deals seems to be dropping off from a sizzling 2013 as asking prices climb.

Deloitte’s Center for Energy Solutions recently published its midyear 2014 report on oil and gas M&A trends that includes a major focus on midstream deals.

“The midstream sector reported the most dramatic slowdown in merger and acquisition activity during the first half of the year. Much of the demand for new pipelines and processing facilities needed to keep pace with the growth of unconventional plays in North America is being met by new construction which is suppressing acquisition activity in the sector,” said John England, Deloitte vice chairman and U.S. oil and gas leader, in the report. He added that “management teams are generally focused on organic growth and cost containment” as higher prices make many deals uneconomic.

The trick right now for midstream executives is finding a deal at a reasonable cost, according to Kenny Feng, CEO and president of the Dallas-based MLP tracking firm Alerian. “It’s a seller’s market. The asking prices are pretty high right now,” Feng told Research magazine in its recent MLP report.

But private equity continues to focus on oil and gas investments—particularly midstream and field services. Deloitte found “interest rates are forecast to remain low for the remainder of the year, and companies’ rising stock prices mean potential buyers may be able to access additional capital through stock appreciation,” the report said. Greater available assets can provide collateral for an acquisition.

But the drop off in midstream deals remains relative, it added, following red-hot deal activity in 2012 and 2013. There still was a lot of first-half M&A activity in the sector.

“Many larger midstream companies found fewer opportunities to grow their distributed cash flow through acquisitions” in the first six months, according to Deloitte. “Deal value tumbled 66% percent, or $21 billion, from $32 billion in the first half of 2013 to $11 billion in the first half of this year. The number of deals fell to 14 from 28 during the same period.”

Deloitte said the deal by The Williams Cos. to purchase the portion of Access Midstream Partners LP it didn’t already own for $6 billion was the only midstream transaction among the 10 largest oil and gas deals it listed for the half.

What would have been midstream’s biggest M&A deal of the first half—a merger of Energy Transfer Equity LP with Targa Resources Partners LP—was called off in mid June. That deal would have been worth in the neighborhood of $15 billion. Why the washout? No surprise, given the price trends, according to analysts. Tudor, Pickering, Holt & Co. observed in its daily newsletter that “It’d be expensive, 18 times 2015 EBITDA,” for a full general partner/limited partner deal, equal to a steep 20% premium.

Pricewaterhouse Coopers LLC (PwC) noted in a recent report that midstream activity picked up in the second quarter from a slower first three-month period, lifting the overall midstream M&A volume for the half. It noted 10 midstream deals in the May to June period valued at $12.1 billion. That’s down from 12 deals in second-quarter 2013 worth $17.5 billion.

“There was an increase in financial investor involvement in the second quarter focused on midstream divestitures evenly split between corporate and asset,” said Rob McCeney, PwC U.S. energy and infrastructure deals partner. “In the second half of 2014, we expect private equity to continue to monetize assets, but also to pursue divested assets in the midstream and upstream space as they continue to look for opportunities to deploy capital.”

Upstream activity and the related need for new or repurposed midstream infrastructure has kept prices up, according to Deloitte. High sales prices mean higher-value assets, which encourages would-be midstream sellers to seek new capital from investors instead. Deloitte found 16 MLPs filed IPOs during the first half—more midstream IPOs than in some entire years.

“IPOs are another source of competition for deals that buyers have,” said Jason Spann, partner with Deloitte’s M&A transaction services. MLPs are a great draw for investors as long as interest rates remain low. But that interest rate trend could change if the Federal Reserve allows interest rates to float upward in coming months, which some observers think is likely.

The Internal Revenue Service (IRS) has a significant role in midstream M&A activity too due to the unique tax situation of MLPs, the predominant organizational structure in the midstream. The IRS announced a moratorium in April on MLP qualifying income. “The IRS’s review of its policies toward MLPs is not expected to result in significant changes, but it may make it more difficult for some partnerships to move forward with IPO plans,” Spann said.

Following Kinder Morgan’s early August announcement that it will roll its three MLPs back into the parent corporation, the IRS has announced it will more closely review MLP-related deals.

“We at Treasury are looking into the effects of these transactions on future tax revenues. Instances where the tax base may be eroded serve as a reminder of why we need Congress to enact business tax reform that broadens the tax base and lowers tax rates,” an IRS spokesman told Reuters following the Kinder Morgan announcement.

Looking broadly at the second half, that pick-up in activity that started in the second quarter noted by PwC may be continuing. Deloitte said in its report M&A activity should increase—certainly borne out by the size of the $71 billion Kinder Morgan roll-up.

“Across the oil and gas industry, the deal market may be primed for an increase in activity as companies seek more capital to fund North America’s ongoing energy renaissance,” it said. It particularly mentioned Mexico’s energy reforms as a catalyst for new activity. Opportunities there for private, foreign corporations in all phases of the oil and gas business could change the numbers, making marginal deals worthwhile.