Simon Lack, Portfolio Manager

Kinder Morgan (KMI) reported earnings last week and announced that President Kim Dang will be taking over from Steve Kean as CEO. This prompted us to look back over KMI’s history, which reflects some of the best and worst of the MLP sector for the past ten years.

The US Energy Information Administration (EIA) published their Short Term Energy Outlook last week. The EIA produces an enormous amount of data and is apolitical. For energy investors it’s really all good news.

Fed chair Powell downplays the blue dots but often refers to them at his press conferences. Usually, the dots move towards the market as the Fed even has trouble forecasting their own policy rate. A recession later this year is the consensus forecast. It’s conventional wisdom that tighter policy will depress growth and induce a pivot. Fed funds futures imply easier policy by year’s end, although with less conviction than a month ago. The minutes released last week showed members expect, “a sustained period of below-trend real GDP growth would be needed.”

Readers know not to expect bearish views on energy from this blog. A year ago, we offered ten reasons why we thought the outlook was positive (see The Upside Case For Pipelines – Part 1 and Part 2). We were right about the direction but not all our reasons played out. Below is a report card:

How do you conservatively value illiquid assets in a fund that offers liquidity to existing investors and accepts money from new ones? That’s the unsolvable question inadequately answered by the $125BN Blackstone Real Estate Investment Trust (BREIT), which is why they were forced to suspend withdrawals.

We all know the US tax code is complicated. ALPS Advisors, manager of the Alerian MLP ETF (AMLP), has been tripped up by the tax complexities inherent in their fund structure. As a result they’ve been forced to make an embarrassing NAV adjustment to AMLP for taxes, depressing the fund’s NAV by almost 4%. It must be frustrating for recent buyers, since it shifted the fund to a 2.7% monthly loss, 3.9% behind its index.

Long term energy forecasts are nowadays subject to a partisan test by many readers based on whether or not they project a rapid energy transition. The biggest oil and gas producers such as Exxon Mobil and Shell understand that the media interprets their published long run energy forecasts as reflecting their capex criteria. The result is a set of projections leavened with cheerleading for renewable energy, leaving the reader to separate the two.

2022 should have been a great year for renewables. The prices of fossil fuels, which they are supposed to replace, have jumped. Russia’s invasion of Ukraine has heightened the importance of energy security, which solar panels and windmills offer because most countries can find places to build them. And global Green House Gas emissions (GHGs) have rebounded following the dip caused by the pandemic. So why aren’t renewables stocks riding high?

As the world’s leaders meet in Egypt at the COP27 climate change conference, there are reasons for optimism among those who yearn for a pragmatic approach to reducing global Green House Gas emissions (GHGs).