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Is the energy transition really leaving oil and gas behind, or is the story more complicated? In this episode, Emerson sits down with Simon Lack, CFA, Managing Partner at SL Advisors and veteran of more than four decades in investment management, to unpack what is actually happening inside the midstream energy space.
Simon draws on his experience as an investor, author, and board member of the CFA Society in Naples, Florida to walk through the history of MLPs, the painful reset after 2014, and why he believes natural gas and energy infrastructure are positioned to be long term winners in a world hungry for power, data, and reliability.
You will want to hear this episode if you are interested in...
Simon walks through the origin story of MLPs in the late 1980s, explaining how tax advantaged structures attracted high net worth investors who were comfortable with K-1s in exchange for deferred income. That calm income story changed with the shale revolution. Rapid investment, overbuilding, and the emergence of stranded or underutilized assets pushed the sector into an extended downturn starting around 2014.
Kinder Morgan’s decision to cut distributions and then restructure its GP and MLP entities became a turning point. Many long time income investors faced both reduced cash flow and unexpected tax bills, leaving them frustrated and reluctant to come back. Over time, many MLPs converted to corporations, widened their investor base, and rethought how growth should be funded.
Simon also highlights one underappreciated culprit in the 2020 crash, heavily leveraged closed end MLP funds that were forced to liquidate in March 2020, pushing prices far below what underlying cash flows justified. The upside, in his view, is that the weakest hands and structures have already been washed out of the system.
Looking forward, Simon makes a clear distinction between oil and natural gas. Oil, he notes, is mainly a transportation fuel and subject to policy swings. Gas is different. It is difficult and expensive to move, which means infrastructure assets that move it are often backed by long term, take-or-pay style contracts and relatively visible cash flows.
He points out that the biggest real “energy transition” in the United States has already happened quietly. Shifting from coal to natural gas has reduced emissions meaningfully while keeping power reliable and affordable. At the same time, America’s gas is far cheaper than in Europe or Asia, which sets the stage for robust LNG exports for years to come.
Layered on top of LNG is the AI and data center build out. Data centers need power nearly 100 percent of the time, not 20 to 35 percent...
