With US propane production expected to increase by another 18 percent this year as new gas-processing and fractionation plants come onstream, US exports remain an important release valve to help balance the domestic market.
Growing US propane production has depressed the domestic price of this commodity, widening the spread relative to international markets and prompting leading midstream operators to develop export facilities to meet robust demand for seaborne exports.
Our favorite play on this trend, Oiltanking Partners LP (NYSE: OILT), owns significant dock space on the Gulf Coast and has reaped the rewards of working with Enterprise Products Partners LP (NYSE: EPD) to build the nation’s largest export terminal for propane and butane.
Oiltanking Partners earns volume-based throughput fees on these shipments and a share in the margin received on every customer vessels loaded at the Houston Terminal.
In addition to its partnership with the leading US propane exporter, Oiltanking Partners owns significant storage capacity on the Houston Ship Channel and in Beaumont, Texas, and has ample opportunity to expand these facilities to take advantage of robust customer demand.
This MLP’s stock has generated a total return of almost 50 percent since we added the stock to our Conservative Portfolio in September 2013–and we see more upside to come. An anticipated secondary offering to fund a drop-down transaction from Oiltanking Partners’ general partner could give patient investors an opportunity to add exposure to this growth story.
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Elliott and Roger on Feb. 28, 2017
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