The increased energy production coming from developing basins or shale plays needs to be transported to refineries and other storage and distribution destinations to ultimately reach the consumer in a safe, efficient manner. This means additional pipeline infrastructure must be built to transport crude oil, natural gas, natural gas liquids and eventually biofuels.
Pipelines are the safest, most efficient and reliable mode of transportation capable of moving large volumes of liquid energy, making them the preferred choice for moving the energy that our nation needs.
New pipeline systems require a great deal of capital to build. Over the next 20 years, substantial investments will be required to expand our nation's energy infrastructure and accommodate increased domestic energy production, especially for crude oil. Our country's ability to successfully transport, store and distribute our growing domestic energy production is dependent on companies structured as master limited partnerships, MLPs.
Many of the nation's pipeline companies are structured as MLPs. These are businesses that access the public equity markets for capital and are treated for tax purposes as partnerships. The MLP structure helps keep capital costs low, which facilitates funding of large-scale investments including pipeline, storage and distribution infrastructure.
The MLP structure has other significant benefits, as well. It provides Americans, through the public equity markets, the opportunity to invest in companies with large, capital-intensive projects such as pipelines, storage and other energy infrastructure. The quarterly cash distribution paid by MLPs is particularly attractive to those on fixed incomes.
Along with the construction of new pipeline systems, MLPs are also focused on organic or "bolt on" growth projects that enhance their existing infrastructure. Whether it's building new pipelines or enhancing the existing system, MLPs are hiring direct and indirect employees to work on these much-needed infrastructure projects. Even during the recent economic downturn, many MLPs were responsible for creating thousands of domestic jobs by hiring new employees and contractors.
Since 1987, Congress has limited the types of businesses that can be structured as MLPs to those involved in capital-intensive industries that generate the majority of their income from specifically defined qualifying sources of income, such as the storage and distribution of energy resources. Pipeline companies building new and expanding existing infrastructure to accommodate increased domestic energy production is exactly what Congress envisioned, and the tax structure has clearly promoted investment in our nation's energy infrastructure.
MLPs not only support U.S. energy infrastructure needs, they also provide much-needed sources of investment income for a significant number of Americans nearing or in their retirement years.
In Washington, it appears that all corporate tax provisions are under increased scrutiny at this time. Congress must ensure that it continues to support the long-term energy infrastructure needs of our country while protecting the steady income source MLPs provide to retired Americans with any tax changes considered.
Original Print Headline: MLPs fuel needs of our energy infrastructure
Michael Mears is president and CEO of Magellan Midstream Partners LP, a Tulsa-based master limited partnership.
The views expressed here are those of the author and not necessarily the Tulsa World. To inquire about writing a Business Viewpoint column, email a short outline of the article to Business Editor John Stancavage at john.stancavage@tulsaworld.com. The column should focus on a business trend; the outlook for the city, state or an industry; or a topic of interest in an area of the writer's expertise. Articles should not promote a business or be overly political in nature.
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