Creating hydrogen MLPs could be long process − US analyst

18 June 2014 23:35 Source:ICIS News

HOUSTON (ICIS)--Creating a hydrogen master limited partnership (MLP) could be a long process, and it might not fetch a higher valuation, a US-based analyst said on Wednesday.

John Roberts of UBS brought up the possibility in a research note about Rockwood CEO Seifi Ghasemi becoming the head of Air Products, replacing John McGlade on 1 July.

Air Products has a significant hydrogen business that includes a 180-mile (290km) hydrogen pipeline that connects 22 hydrogen plants. The pipeline supplies hydrogen to about 90% of the refineries in the Gulf coast.

Although Rogers's hydrogen comments were limited to Air Products, the company is not the only hydrogen producer in the US.

Praxair also has a pipeline integrating its Texas and Louisiana operations. Integrated into this network is a 2.5 billion cubic feet (bcf) hydrogen storage cavern.

UBS has considered whether Air Products's core hydrogen business could qualify for MLP status, Rogers said.

For the chemical industry as a whole, publicly traded MLPs have become attractive.

They typically provide higher income yields than publicly-traded stocks because of their advantaged tax structure.

An MLP is required to “pay out all earnings not needed for current operations and maintenance of capital assets to their unit holders in the form of quarterly cash distributions”, according to the National Association of Publicly Traded Partnerships.

The fact that investors place higher valuations on publicly-traded MLPs than their commodity chemical counterparts means financing through an MLP structure for such projects could make sense.

Nearly two years ago, the Internal Revenue Service (IRS) opened the door to creating such MLPs for olefin production that is derived from natural gas liquids (NGLs).

Since then, Westlake recently formed Westlake Chemical Partners to operate, acquire and develop ethylene plants and related assets.

Methanol producers may also consider MLPs.

By Al Greenwood