There is very little chance that this can compete economically with oil without being heavily subsidized. I have personally worked on this process before, and oil companies have poured billions into it. The mechanism for the reaction is well-known, but it’s very challenging economically. In fact, one of Siluria’s executives was at a conference I was recently at, and I pressed him on the economics. The way he responded to my questions told me that they have the same economic challenges that the oil companies always have, they have just convinced people that they are doing something different in a different niche. Like KiOR. Or Gevo. Or Amyris. All publicly traded companies, all decimated or bankrupt.

This is going to be a theme in this week’s Energy Strategist. The refiners still look pretty good, and the midstreams nearly always turn in a positive second half performance after a negative first half performance. The highly exposed oil producers are at the most risk, but future price declines are being priced in. I would be cautious right now, though, and if oil prices fall back to the low $40’s I would start to accumulate some of the companies that are most exposed to oil prices.

All MLPs have been hit hard by sellers panicking with little long-term reason, in our view. We plan to stay the course with the promising, largely proven midstream investments we’ve been recommending here, and think any further declines will present uncommon buying opportunities.

I don’t see this as a near-term likelihood, though UBS does have the right to redeem the ETN at any time. From their web site (http://etracs.ubs.com/product/detail/index/ussymbol/MLPL):

In the event the indicative value of the ETRACS ETNs is equal to $5.00 or less on any Index Business Day or the intraday index value on any Index Business Day decreases 30% from the most recent Monthly Initial Closing Level, the ETRACS ETNs will be automatically accelerated and mandatorily redeemed by UBS and you will receive a cash payment equal to the Acceleration Amount as determined during the Acceleration Valuation Period. The Acceleration Amount you receive on the Acceleration Settlement Date may be significantly less than $5.00 per ETRACS ETN and may be zero if the level of the Index continues to decrease during trading on one or more Index Business Days during the Acceleration Valuation Period as measured by the Index Performance Ratio on one or more Index Business Days during the Acceleration Valuation Period.

UBS’s Call Right – UBS may elect to redeem all outstanding ETRACS ETNs at any time on or after July 11, 2011, as described under “Specific Terms of the Securities – UBS’s Call Right” in the ETRACS Prospectus. If UBS exercises its Call Right, the Call Settlement Amount may be less than your initial investment in the ETRACS ETNs.