The growth in unconventional gas has had a dramatic impact on the supply basins of the US market, and an attendant need for new infrastructure. The first major play to emerge was the Barnett, which was a huge play for many MLPs, but notably Energy Transfer Partners, ETP, which has become the biggest gas transmitter in the US on a portfolio built around its Barnett transmission systems.

However now, as can be seen above, the Barnett is ceding market share quite dramatically to the growth of the Haynesville, the Marcellus, and the Eagle Ford. In the shorter term other growth plays such as the Fayetteville look impressive but are expected to fade relatively over time. Much is dependent on the relative price of oil vs natgas, but our fundamental view is that oil is more supply challenged globally and the use of oil faces less competition over the medium term. By contrast natgas is more abundant, supply reacts, clearly to higher prices, and it is in competition with a wider range of fuels, many of which, like coal, are lower priced. Of course, demand is shifting regionally. Notably, final consumption of natural gas has risen the fastest in Pennsylvania, over which the massive Marcellus shale stretches, and where state regulations are supportive of unconventional development. The growth of Californian demand underlines the importance of regulation and legislation in natgas demand, with State mandated gas-fired power making this the fastest growth state in absolute terms for demand growth 2005-2008 (i.e. pre-recession). Other notable growth markets such as Florida and New York do not exploit unconventional gas themselves and require extra infrastructure development to keep growing - good news for MLP natgas transporters. Michigan and Ohio have suffered in the recession, with lost manufacturing that may well never return. Texas added coal-fired power, particularly in 2009, and wind, offsetting gas use; that added to the problems of over-supply being created by the first major unconventional supply boom play, the Barnett Shale.

We identify three major players on the unconventional theme: Energy Transfer, with a large Barnett exposure, looks more mature to us. Enterprise Product Partners already plays on our favouring of oil over gas, with their exposure to natgas fractionation spreads; it is clearly the best located for the growth in liquids from the Eagle Ford, with the strategic location of its major fractionation hub, Mont Belvieu, well- located to offtake Eagle Ford production. Kinder, with its huge footprint across all US energy themes is the third major player. Finally, relatively most levered given its smaller size, Boardwalk Partners has a spread exposure networking out from its large Texas positions.

Eoin Treacy's view Unconventional natural gas has changed the landscape in terms of how the commodity is priced and has opened up a number of investment themes. Our initial investigations last year focused on some of the drilling companies exploiting these resources but given the downward pressure this was putting on prices and margins we focused instead on sectors that would benefit most from lower natural gas prices. This led us to look at the chemical sectors, not least DuPont and the ammonia fertiliser sector both of which benefit from lower input prices.

Master Limited Partnerships offering transportation, often through pipelines, from unconventional gas fields to end users are an additional play on the sector. They are also attracting investors seeking a competitive yield following the compression of spreads in the sovereign and higher rated corporate bond sector. (Also see Comment of the Day on October 1st for a piece on Canadian pipeline related income plays.)

This list of the MLPs mentioned in the above report with their corresponding 12-month net dividend yields highlights that while just about all of them have rallied impressively over the last year, their reliable payouts continue to make the sector attractive to those seeking yield as well as capital appreciation.

In common with the Canadian pipeline companies reviewed last week, progressions of higher reaction lows have been the defining characteristic of medium-term uptrends in this sector and these would need to be taken out to question scope for further upside. All of the MLPs listed in this report can be found in the Chart Library.