D?uring February, the Alerian MLP Infrastructure Index (AMZI) produced a total return of 3.7%, slightly outperforming the S&P 500 Index increase of 3.4%. The 10-year treasury increased from 3.4% at the end of January to a high of 3.7% on February 8 and back to 3.4% by month-end. The yield on the AMZI ranged between 5.78% and 6.05%, for an average monthly yield of 5.94%. The top performer in the AMZI was Duncan Energy Partners LP with a 23.9% return, following a unit-for-unit merger offer by Enterprise Products Partners on February 23.

On top of handling fourth-quarter earnings calls, MLPs have remained active, particularly on the equity front. During February, MLPs raised $1.2 billion in follow-on offerings, which compares to $1 billion raised in February 2010. Also, PAA Natural Gas Storage LP raised $375 million and Buckeye Partners LP raised $100 million in private-placement transactions to third-party purchasers. More notably, Kinder Morgan Inc. raised nearly $2.9 billion in the largest energy-related initial public offering since 1998.

Some major MLP announcements in February included Enbridge Energy Partners LP’s Bakken pipeline expansion securing an additional 100,000 barrels per day of commitments and Energy Transfer Partners LP securing agreements with shippers in the Eagle Ford play and building $300 million of pipeline and processing facilities. Elsewhere, Crestwood Midstream Partners LLC acquired $338 million of gathering, processing and treating assets in the Fayetteville and Granite Wash plays.

At the forefront of commodities news has been the widening pricing spread between West Texas Intermediate (WTI) and London Brent crude. Historically, WTI has traded at a slight premium to other crudes due to its low sulfur content and high API gravity. More recently, however, WTI has traded at a sharp discount to Brent—a record $16 per barrel—primarily due to infrastructure-related issues. Crude oil supplies to the Cushing Hub in Oklahoma have been increasing due to increased Canadian oil sands and Bakken production. In particular, the Keystone pipeline began commercial deliveries of crude oil from Nebraska to Cushing in early February. For the most part, storage capacity at Cushing has been able to keep pace with such growth, particularly via expansions by Plains All American Pipeline LP, Enbridge Energy Partners LP and Magellan Midstream Partners LP. However, a lack of pipeline-transmission capacity from Cushing to Gulf Coast refiners is discounting the price of WTI versus other crudes.

Two planned pipeline projects could help the Cushing Hub—TransCanada Corp.’s Keystone XL project and Enbridge Inc.’s Monarch pipeline—but they are not expected to be online until 2012 or later. Meanwhile, several MLPs continue to invest capital in storage projects, which could keep the discount wide. Magellan Midstream acquired full interest in its 4.25-million-barrel Cushing storage joint venture from private investors, and Kinder Morgan formed a joint venture with Deeprock Energy Resources LLC and Mercuria Energy Trading Inc. to acquire a million barrels of current storage capacity and construct another 750,000 barrels of storage in Cushing by third-quarter 2011.

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