Investing in pipeline stocks

Investing in pipeline stocks is a unique opportunity to buy into the profitability of the oil and gas sector. But public opposition to pipeline infrastructure has the potential to interrupt projects and halt construction efforts. Read on to find out more about investing in pipeline stocks, including the risks and returns.

What are pipelines?

Pipelines are the physical structures responsible for transporting natural gas, crude oil, natural gas liquids, petroleum and petrochemicals from production centers to refineries, docks, terminals, power plants and consumers. They are a core component of the oil and gas industry and without their infrastructure, the system would grind to a halt.

Pipelines can be divided into four subcategories:

• Gathering. These lines gather products from wells and transport them to processing plants.
• Feeder. These lines transport oil, gas and liquids from storage tanks and processing plants to transmission pipelines.
• Transmission. These large pipelines can span more than three feet wide and are responsible for carrying oil, gas and natural gas liquids across state lines and country borders for processing or storage.
• Distribution. These pipelines are responsible for distributing natural gas to homes and businesses.

Pipeline stocks are stocks from companies that build, operate or maintain energy pipelines. Generally, there are two types of companies in this space: pipeline corporations and master limited partnerships (MLPs). Both are viable investment opportunities.

Why invest in pipeline stocks?

From 2019 to 2025, global oil production is expected to grow massively. And this growth will require more pipeline infrastructure.

While it’s true that we’ve begun to experience a global shift towards green energy, we’re far from eliminating our reliance on gas and oil. Plus, many pipeline companies pay dividends, making pipeline stocks a practical portfolio addition for buy and hold investors.

Risks of investing in pipeline stocks

The profitability of pipeline companies depends on the price of oil and gas. And oil and gas prices can be unstable.

Pipeline companies get paid based on the amount of gas and oil they move. When the price of these commodities falls, drilling companies cut back their activity, well output declines and less oil and gas flows through pipeline infrastructures.

Another risk for Australian investors to consider before buying into pipeline stocks is the rising opposition to new infrastructure. Investors should be aware of the environmental risk it poses.

Namely, pipeline leaks have the potential to contaminate water supplies. Pipeline protests can sideline construction efforts and delay projects, effectively reducing productivity and decreasing profits for companies and shareholders alike.

Pipeline stocks

There are many stock options for Australian investors ready to buy into the pipeline category.

What ETFs track the pipeline category?

Exchange-traded funds that include pipeline companies typically track multicap energy master limited partnerships (MLPs).

Compare trading platforms

Before you can invest in pipeline stocks, you’ll need a brokerage account in Australia. Review your options below.

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eToro Exclusive		US$2	US$10 per month if there’s been no log-in for 12 months	ASX shares, Global shares, US shares, ETFs	Yes	Exclusive: Get 12 months of investment tracking app Delta PRO for free when you fund your eToro account. T&Cs apply. CFD service. Capital at risk. Trade stocks, commodities and currencies from the one account and get access to social trading.	Go to siteMore Info Compare	loading Fetching your data...
CMC Invest Finder Award		$0	$0	ASX shares, Global shares, Options trading, US shares, ETFs	Yes	$0 brokerage on US, UK, Canadian and Japanese markets (FX spreads apply). Trade over 45,000 shares and ETFs from Australia and 15 major global markets. Plus, buy Aussie shares or ETFs for $0 brokerage up to $1,000 (First buy order of each security, each day - excludes margin loan settled trades).	Go to siteMore Info Compare	loading Fetching your data...
Moomoo Share Trading Exclusive		US$0.99	$0	ASX shares, Global shares, Options trading, US shares, ETFs	Yes	Finder exclusive: Unlock up to AUD$4,000 AND US$4,000 in $0 brokerage over 60 days. T&Cs apply. Trade US, Asian and CHESS-sponsored ASX stocks and get access to social trading.	Go to siteMore Info Compare	loading Fetching your data...
Tiger Brokers Finder Award		US$1.99	$0	ASX shares, Global shares, US shares, ETFs	Yes	Trade US, Asian and CHESS-sponsored ASX stocks and US options.	Go to siteMore Info Compare	loading Fetching your data...
Webull Exclusive		US$0.25	$0	ASX shares, Global shares, Options trading, US shares, ETFs	Yes	Finder exclusive: Get an additional 20 $0 brokerage trades. Get up to $500 in trading vouchers when you deposit funds. T&Cs apply. Trade over 3,300 Australian and US ETFs with $0 brokerage.	Go to siteMore Info Compare	loading Fetching your data...

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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Bottom line

Australian investors seeking a dividend-paying, long-term investment may find value in pipeline stocks. But profits in this category depend on the price of oil and gas and may be impacted by public opposition.

Before you invest, find the right brokerage account that fits your investment goals.

Frequently asked questions

• How do pipeline companies make money?

  Pipeline companies make money by charging a fee for the oil or gas they transport. Fees are usually set by the barrel or unit. Pipeline companies often set up contracts — typically between five to 20 years — with their customers to help stabilize cash flow.

• What is the biggest pipeline company?

  Enbridge (ENB) is one of the largest pipeline companies in the world by enterprise value.

Written by

Shannon Terrell

Writer

Shannon Terrell is a writer for Finder who studied communications and English literature at the University of Toronto. On any given day, you can find her researching everything from equine financing and business loans to student debt refinancing and how to start a trust. She loves hot coffee, the smell of fresh books and discovering new ways to save her pennies. See full bio