Just as the 49th parallel is invisible to the human eye, it is also invisible to the progress of the energy renaissance.

For most of the 20th century, Russia and the Middle East were the world’s energy superpowers, but North America is well on its way to altering that status quo. Hydrocarbon reserves in the U.S., previously deemed unrecoverable, are now economic to drill thanks to new technologies such as horizontal drilling and hydraulic fracturing. This is turning the Big Five shale plays—the Eagle Ford, the Bakken, the Marcellus/Utica, the Montney and Duvernay— into household names.

Canada is currently the sixth-largest crude producer in the world, but oil sands production is set to double during the next decade.

The dramatic increase in production needs to be connected to the ever-increasing worldwide demand, requiring the buildout of energy infrastructure. The Interstate Natural Gas Association of America (INGAA) produced a study indicating that North America would need $251.1 billion of energy infrastructure investment through 2035. As part of this, the U.S. and Canadian energy economies are becoming more integrated. Canadian infrastructure companies with extensive pipeline networks have long had U.S. master limited partnership (MLP) subsidiaries taking ownership of the assets as soon as pipelines crossed the border.

Paradoxically, the brouhaha surrounding the approval process for Keystone XL has not slowed the process of Canadian crude coming to the U.S. Whether it is approved or not, U.S. Gulf Coast refineries are continuing to switch from heavy, sour Venezuelan feedstocks to bitumen from the Canadian oil sands. While Canadian production is moving south, diluent (a product frequently blended with Canadian crude to allow it to flow more easily through pipelines) is being exported to Canada by both pipeline and rail.

MLP access

Investors looking to participate in this growth have historically gained access via MLPs, as evidenced by the asset class’ growth both from a market capitalization perspective and a media awareness perspective. While the tax benefits of MLPs are very compelling, pipelines, storage tanks and processing facilities continue to be housed in structures beyond MLPs.

These include Canadian midstream companies, MLP affiliates (companies that own the general partner of an MLP), utilities, refiners, exploration and production companies and integrated majors. The first three groups traditionally have revenue streams familiar to MLPs: toll-road business models anchored by long-term contracts and inelastic energy demand.

Industry analysts calculate that these companies collectively invested more than $30 billion into midstream in 2013—triple what the INGAA study would indicate. Going forward, they’ve already identified significant future projects. On the MLP side, Energy Transfer Partners has a $2.7 billion project backlog for this year alone, while ONEOK Partners has a capital spending program of $6 billion through 2016.

The Kinder Morgan family of companies estimates that it will spend $14 billion on organic growth during the next five years. Enbridge Inc. expects to spend $26 billion on announced projects and TransCanada has secured projects totaling $38 billion.

As the decade continues and the U.S. overtakes Saudi Arabia and Russia in oil and gas production while Canada doubles oil sands production, the further integration of these energy economies will provide a huge opportunity set for both investors and citizens alike.

Comments