Continuing its steady growth, the Alerian MLP Infrastructure Index (AMZI) produced a total return of 2.5% in January, outperforming the S&P 500 Index increase of 2.4% and pleasing capital providers.

Similar to 2010, pipeline master limited partnerships (MLPs) started off 2011 with a slew of debt issuances, raising more than $3.2 billion in the first week alone. Between public and private debt offerings, MLPs raised a total of $6.4 billion in January. Attractively priced offerings included Enterprise Products Partners' $750-million, five-year senior unsecured notes with a 3.22% yield to maturity and Boardwalk Pipeline Partners' $325 million, 10-year senior unsecured notes at a 4.52% yield.

On the equity front, $390 million was raised from two secondary public offerings in January and Kinder Morgan Energy Partners' general partner, Kinder Morgan Inc., launched an initial public offering (IPO) in mid-February. Also in the IPO pipeline is Tesoro Logistics, a spin-off of Tesoro Corp., which will trade as an MLP. Industry analysts believe that MLPs could also be formed from a spin-off of Marathon Petroleum Corp.'s logistics business and CenterPoint Energy's natural gas-gathering and processing field-services segment.

Distribution growth in the asset class remained strong in January. Of the 41 energy MLPs that earn the majority of their cash flow from midstream-infrastructure businesses, 28 (68%) increased their distributions versus the prior quarter, and 13 (32%) maintained their distributions. The median distribution increase was 1.3%, quarter-on-quarter.

On the operational front, capacity on Canadian oil pipelines has been tight since Enbridge Inc.'s Lakehead pipeline ruptured in July 2010. Exacerbating this issue are two five-day periods of pipeline closures in February and March on the 6B line from Sarnia, Ontario, to the U.S. Midwest. Other Canadian oil-pipeline operators, such as Kinder Morgan, note that the oversubscriptions on its pipelines have led it to ration shipments of volumes requested by its customers.

Shale-gas activities

Meanwhile, shale-gas operators see growing interest in capacity commitments for midstream service. With growing distributions, robust access to capital markets, and additional capacity and acreage commitments in the shale plays, MLPs are off to a great start in 2011.