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I N N O V AT I O N S • V O L . V I I , N O. 1 • 2 0 1 5
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M A R K E T R E P O R T
As far as long-term, stable financial investments go, it’s
hard to beat a pipeline. While the value of product flowing through
it will fluctuate from month to month, the pipeline itself will endure
as a high-earning investment for as long as it continues to operate.
Considering that the average pipeline operates for 50-plus years, it’s no
wonder that investors – often infrastructure investment companies – are
jumping at the opportunity for a stable return. In the United States,
these infrastructure investment companies are known as master limited
partnerships (MLPs). Some MLPs, like Enterprise Products, specialize in
pipeline investments, while others, like BlackRock, purchase pipelines as
one investment of many in their portfolio.
No matter how they fit into a company’s portfolio, pipelines are
always purchased with the same intent: Generating income for as long
as possible. But since many infrastructure investment companies don’t
typically have engineers on the payroll, they purchase pipelines as intact
operations – relying on the expertise of existing employees, contractors,
and service companies.
Although the pipeline’s engineers and other operators usually remain
the same when an infrastructure investment company purchases a
pipeline, key management decisions tend to focus on protecting the asset
– an opportunity for experts to aid in pipeline integrity.
Fee-based Decisions
To understand some of the operational decisions behind infrastructure
investment company owned pipelines, it’s important to understand the
revenue stream of their assets.
By definition, infrastructure investment is in the asset itself – the
pipeline – rather than the product flowing through it. As the most
efficient form of product transport, a pipeline is an attractive proposition
to companies who wish to get their product to market – these product
owners therefore pay fees to the pipeline operators (shippers) for the
provision of safe, efficient transport of their resources. Beyond the asset
value itself, fees are the revenue stream for infrastructure investment
company owned pipelines.
In many areas, market liberalisation is managed by ensuring that
access to these fee-based pipelines is provided for multiple product
owners, often encouraged by financial regulation. However, due to the
scale of investment required to build the pipelines themselves, it is more
Asset owners become
increasingly proactive to
ensure long-term return
on investments.
Market Trend:
Spending Money Up Front
for a Stable Investment