With Enbridge Inc. planning a $28 billion takeover of Spectra Energy Corp., some investors say the industry’s in store for more deals as pressure mounts on the likes of Enterprise Products Partners LP and Kinder Morgan Inc. to follow suit. The biggest pipeline deal of the year foreshadows a feeding frenzy as those companies that survived the collapse in oil and natural gas prices step up the hunt for bargains. TransCanada Corp. got the ball rolling with the $10.2 billion purchase of Columbia Pipeline Group Inc. earlier in the year.

“We’ve just come through a very tumultuous period,” said Libby Toudouze, a partner and portfolio manager at Cushing Asset Management in Dallas. “Being able to survive the trough in the energy cycle, especially one like this last one that was so long, means you have to be bigger, faster, stronger.”

Enbridge’s deal would vault the Calgary-based company into North America’s largest energy pipeline and storage player. It could also mark the beginning of the "supermajor" era for the industry, according to Rebecca Followill, head of research at U.S. Capital Advisors, since it might “light a fire in the bellies” of the larger pipeline players, setting off a wave of consolidation that could accelerate through the end of 2016.

“Enterprise Products Partners is the other big 800-pound gorilla out there,” Toudouze said. “This puts a little more pressure on them to try to do something in the space.”

Eoin Treacy's view

The MLP sector, which is heavily weighted by pipelines, crashed lower with oil prices. The high leverage employed in the business models of pipeline companies was a major contributing factor in this underperformance. However with increased evidence that oil prices have hit medium-term lows, the relative resilience of North American economic growth and continued low interest rates, it is a natural time for companies to think about acquisitions. 

The Alerian MLP Index has been consolidating in the region of the trend mean since May and a sustained move below 300 would be required to question potential for additional upside. 

This month’s edition of Allen Brooks report, Musings from the Oil Patch, carries a lengthy discussion on the political nature of the environmental lobby’s opposition to additional pipeline building and may be of interest to subscribers.