In March, the Alerian MLP Infrastructure Index (AMZI) fell 3.8% on a total return basis, compared to the S&P 500 return of 3.3%. Of the 25 names in the AMZI, only three names had posiative returns for the quarter—Chesapeake Midstream Partners LP, which gained 4.1%; Buckeye Partners LP, which was up 2.3%; and Western Gas Partners LP, up 0.8%. The sector pullback during the month was somewhat attributable to volatility in interest rates. During the month, 10-year treasury rates increased from 2% to nearly 2.4% and have since pulled back to roughly 2.2%.

Energy Transfer Equity LP (ETE) and Southern Union Co. (SUG) successfully completed their merger in March, with SUG continuing to operate as a wholly-owned subsidiary of ETE. With El Paso Corp. reaching a definitive agreement to sell its exploration and production business for $7.15 billion to various parties, the merger between Kinder Morgan Inc. and El Paso is expected to be on track to close in May.

graph of Alerian MLP Infrastructure index

During the past few months, several MLP analyst days and industry conferences have highlighted the oversupply of natural gas and its impact on current (and future) pricing, how the imbalance will be corrected, as well as how MLPs are adjusting in the current environment. Advances in drilling technology have created a glut in the natural gas markets. Currently, utilization for domestic natural gas storage is above the five-year historical high and during this upcoming summer's injection season, storage facilities are expected to be completely full.

Until the U.S. experiences a significant increase in natural gas demand via increases in gas-fired electricity generation (switching away from coal), industrial demand or gas exports, industry analysts forecast natural gas prices to remain sub-$3.50 per thousand cubic feet for the coming months. In the meantime, producers have shifted their drilling plans away from dry-gas to wet-gas areas, and MLPs have followed suit, focusing more of their efforts on handling natural gas liquids (NGLs).

Leading the pack is Enterprise Product Partners LP, which announced plans to construct two additional 75,000 barrel per day NGL fractionators at its Mont Belvieu complex. Fractionators help separate the NGL stream into individual components such as ethane and propane, which are then used as feedstocks for petrochemical plants or for heating.

Additionally, Enterprise's Texas Express NGL Pipeline project that will help alleviate NGL bottlenecks in West Texas and the Midcontinent area, and a 550-mile ethane header system from Mont Belvieu to every petrochemical plant along the Gulf Coast, will provide more optionality.

Crosstex Energy LP has announced plans to construct its Cajun-Sibon NGL extension pipeline to connect supply from Mont Belvieu to fractionation facilities in South Louisiana. The extension is expected to be operation in the first half of 2013. The Energy Transfer Partners LP and Regency Energy Partners LP joint venture, Lone Star NGL LLC, plans to construct two 100,000 barrel per day fractionation facilities at Mont Belvieu, the first to come online during first-quarter 2013, the second to be completed in first-quarter 2014.

Intuitively, it would seem that MLPs that possess natural gas storage facilities would benefit from high storage utilization rates. However, since most natural gas storage facilities have contracted out 70% to 90% of their storage capacity one to three years in advance, such MLPs will likely not see incremental benefit as storage fills to capacity. n

Maria Halmo and Emily Wang are directors for Alerian, an independent indexing company that provides objective market information. More than $7 billion is directly tied to Alerian's indices, which include the leading benchmark of MLP infrastructure equities—the Alerian MLP Infrastructure Index (AMZI). For more information, please visit www.alerian.com