The fervor created by high oil and gas prices and, frankly, by overblown headlines about natural gas shortages and crude oil supply crises, has been extending to energy infrastructure. Investors have flocked to the industry for a long time, historically to get a piece of production revenues. In 2004, most E&P stocks are up more than 50%. Energy mutual funds have outperformed most other sector funds. This vibrant market has sparked a lot of new investors in energy, but we will see how fickle they are if and when oil falls back below $40, as it probably will (although we are not about to call the date on that prediction). Meanwhile, Global Change Associates recently announced it has published a new directory of energy hedge funds that are investing in equities and/or are active in the futures market. The New York consulting firm has identified more than 240 energy-related hedge funds, says chairman Peter Fusaro. "But I think the number may be closer to 400," he told us, as he uncovers another fund every few days. Plenty of examples show how enthusiasm for energy has moved beyond the traditional investment in E&P companies. The recent $225-million, high-yield debt offering of Denver-based MarkWest Hydrocarbon was oversubscribed by a whopping 13 times, a true sign of appetite for energy infrastructure plays. The bellwether Warburg Pincus private-equity group is interested in expanding its investment reach beyond E&P. It has added energy-related technology, international E&P and infrastructure or midstream ideas to its impressive oil and gas portfolio, managing director Jeffrey Harris told me recently. Hicks, Muse, Tate & Furst Inc. is another investor eyeing infrastructure. The Dallas company is stepping up its energy investing, with its first deal the purchase of a South Texas E&P company. But its second acquisition is focused on infrastructure: Regency Gas Services LLC. The $405-million deal involves midstream assets in Texas and the Midcontinent. The infrastructure side of the business is as busy as that of E&P, although perhaps it doesn't attract the same intense spotlight. But that is about to change. As you'll see elsewhere in this issue, nearly a dozen new natural gas storage projects are proposed for the U.S., totaling 105 billion cubic feet (Bcf) of additional storage capacity. The National Petroleum Council estimates North America will need an additional 700 Bcf of storage by 2025. Infrastructure may seem the less sexy part of the industry, but it can be as profitable and has as much potential for growth. Witness the astounding rise of multi-billion-dollar Kinder Morgan Energy Partners or Enterprise Products Partners. These infrastructure master limited partnerships depend on throughput or volume more than commodity prices, which as we all know, probably have more downside than upside at this point. They remind me of the tortoise, which is slow and steady, offering tax-free distributions, versus the hare, which I liken to the fast but finicky E&P equities that never race in a straight line. They run erratically-sometimes fast from a discovery or acquisition, more often slow from development drilling. But a new investment vehicle is revving its engines this year-public entities created to invest in energy infrastructure MLPs. Tortoise Energy Infrastructure Corp. is credited with starting the trend. It went public in February on the New York Stock Exchange, led by Lehman Brothers, RBC Capital Markets and Stifel, Nicolaus & Co. This closed-end management investment company, based in Overland Park, Kansas, raised about $300 million. It plans to invest at least 70% of its assets in publicly traded units of energy infrastructure MLPs. These can be pipelines, gas processors, propane distributors and coals. "MLPs could be...gaining traction among investors," said Lehman analyst Richard Gross in an October report. Then in June, A.G. Edwards led the IPO for Energy Income and Growth Fund, which trades on the American Stock Exchange. It too will invest in energy MLPs. Next came the September IPO of Kayne Anderson MLP Investment Co., led by Citigroup and UBS Securities. This closed-end fund will invest 85% of its assets in MLPs. KYN trades on the New York Stock Exchange. "The ability of Kayne Anderson to raise $750 million in a closed-end MLP mutual fund speaks volumes on growing demand," Gross said in his report. He predicts more investors will be attracted to these investment vehicles as they gain greater visibility. At press time, other such funds were in various planning stages to go public as well. Finally, we give you the infrastructure momentum still building in liquefied natural gas. At press time, Houston's Cheniere Energy Inc. obtained financing and customers (Total and ChevronTexaco) for its second LNG terminal, this one proposed for Sabine Pass on the Texas-Louisiana border. And, FERC has approved its environmental impact statement.

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