Issue link: https://read.dmtmag.com/i/241540
TRENDS AND TIDBITS continued from page 19 The Panama Canal Expansion: Who Stands to Gain? In June 2015, if all goes well, the first ships will sail through a newly enlarged Panama Canal. This expansion provides U.S. energy companies the opportunity to compete more aggressively for the Asian market. Today, it 42 takes 41 days for large liquefied natural gas carriers or similar sized ships to travel from the U.S. Gulf Coast to Asia. Once the expansion is complete, the trip will take about 25 days. Here are three U.S. energy companies well-positioned to capitalize on the Panama Canal expansion. Refining, storage, and transportation Most investors see Phillips 66 as an oil refining company, and with good reason. However, a big part of Phillips' business, particularly its export business, centers on natural gas liquids such as propane and butane. When exported, these commodities are known as liquefied petroleum gas (LPG). With growing U.S. production and growing worldwide demand for these products, Phillips looks wellpositioned to profit. In addition to the LPG export assets already in place, Phillips plans to build another export terminal at its Freeport, Texas facility. Feeding the Freeport terminal will be expanded fractionators, located in nearby Mont Belvieu and Old Ocean, Texas. The fractionator expansion should come online in the second half of 2015, the export terminal in the summer of 2016. Don't underestimate the importance of this export activity. Phillips and other refiners face a declining U.S. gasoline market. To keep refineries going, gasoline and LPG exports will need to grow. So far, Phillips has expanded its exports for three consecutive quarters with more growth on the immediate horizon. These exports, coupled with declining crude oil costs in the U.S., should fuel Phillips' profits in the coming years. Storage and transportation Not content to move energy across the U.S., Buckeye Partners expanded its operations to serve the Latin American market. With the Panama Canal expansion, the Asian markets now present a viable opportunity as well. Two recent acquisitions made all this possible: the 2011 purchase of terminals in the Bahamas and the soon- to-be-closed acquisition of terminals from Hess. These Hess terminals give Buckeye an expanded presence in New York Harbor, Puerto Rico and the southern U.S. seaboard. Why did Buckeye buy the Bahama and Puerto Rico terminals? I suspect two reasons. First, the terminals are strategically located for transport of crude oil and various refined products between the U.S. Gulf Coast, the U.S. East Coast, Europe and Latin America. Again, the enlarged Panama Canal opens the door to Asia and the U.S. West Coast. Second, the U.S. government makes it expensive to ship oil or other products directly between U.S. destinations. Specifically, to ship oil directly between U.S. ports, you must use U.S. registered ships, comply with U.S. regulations and use only U.S. crew members. By shipping oil to the Bahamas or other foreign destination first, a shipper doesn't have to comply with all those government demands and related expenses. Buckeye boasts a track record of growing earnings and distributions. The distribution coverage ratio remains above 1.0, a healthy sign. Its debt has IDA UNIVERSAL January-February 2014