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Magnum Hunter Resources Corp (MHR), Markwest Energy Partners LP (MWE), Kinder Morgan Energy Partners LP (KMP): The $250 Billion Problem That’s Holding Back American Energy Independence


Photo credit: Flickr/shannonpatrick17

Oil and gas producers struggle with a number of issues, but there is one in particular that is really holding them back: lack of infrastructure. By some estimates, this is a $250 billion problem for the industry. That is the amount of midstream infrastructure investment that’s required to get the record volumes of oil and gas moving from production basins to market centers. In fact, this past year a number of producers have pointed out that lack of necessary infrastructure is costing them valuable production. In some cases this production is simply being shut in; however, as fellow Fool Tyler Crow recently pointed out, lack of infrastructure is actually costing Bakken producers more than a billion dollars each year.

One producer that recently acknowledged its infrastructure issues is Magnum Hunter Resources Corp (NYSE:MHR) In fact, in the last quarter, the company had 1,873 barrels of oil equivalent worth of production per day shut in due to infrastructure issues. That would have boosted its production for the quarter by another 12%, which is no meager sum for the small oil and gas producer.

Part of the problem is of the company’s own creation; it simply discovered more natural gas liquids than it had previously estimated that it would find. While that’s a good problem to have, it still was a drag on the quarter — the company’s midstream subsidiary needed to invest in additional equipment as well as wait for new permits to be issued before its added production could start flowing.

In addition to the lack of pipeline capacity, Magnum Hunter Resources Corp (NYSE:MHR) had to wait for the processing capacity at the Markwest Energy Partners LP (NYSE:MWE) Mobley plant to be expanded to handle the additional volume. Currently, the plant has enough planned capacity, so this won’t become problematic for Magnum Hunter Resources Corp (NYSE:MHR) for at least the next year.

One of the bigger issues, though, is getting these volumes of natural gas liquids to customers; its estimated that more than 1.4 million barrels of liquids per day will be produced in the Marcellus and Utica by 2020, but there is just 400,000 barrels per day of takeaway capacity currently under construction. Markwest Energy Partners LP (NYSE:MWE) is one of a number of midstream companies working on a long-term solution. The company recently announced a joint venture with Kinder Morgan Energy Partners LP (NYSE:KMP) on an natural gas liquids pipeline to the nation’s Gulf Coast petrochemical center. The project, which will also include a processing complex in Ohio and fractionation facilities on the Gulf Coast, won’t be operational until the fourth quarter of 2015.

It’s the third proposed project that is designed to link the Marcellus and Utica to the Gulf Coast. The first project announced was Enterprise Products Partners L.P. (NYSE:EPD)‘s ATEX Express. The key to getting it off the ground was the fact that about 70% of the route uses existing pipeline which has been repurposed for the project. Not only does this limit the environmental impact of the project, which is important in light of the issues that the Keystone XL has encountered, but it also enables Enterprise Products Partners L.P. (NYSE:EPD) to get the work done faster and cheaper. Similarly, Markwest Energy Partners LP (NYSE:MWE) and Kinder Morgan Energy Partners LP (NYSE:KMP)’s pipeline will convert 900 miles of existing pipe while building another 200 miles to get the project into service.

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