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Last Week’s Rise in Natural Gas Prices: What It Means for MLPs

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Aug. 11 2015, Published 12:53 p.m. ET

Natural gas prices

The benchmark Henry Hub natural gas prices rose to $2.80 per MMBtu (British thermal units in millions) for the week ending August 7. The prices closed at $2.72 per MMBtu for the week ending July 31. Natural gas prices rose on Monday and Tuesday on forecasts of warmer weather in the US. Natural gas is used to generate power for cooling purposes.

According to a report from the EIA (U.S. Energy Information Administration), natural gas inventories rose by 32 Bcf (billion cubic feet) for the week ending July 31. Natural gas inventories remain higher than their five-year average. The inventory build was lower than expected. This caused natural gas prices to rise marginally on Thursday, August 6.

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Natural gas prices fell

Natural gas prices fell significantly after 2008. Since then, prices have generally remained low. This trend is expected to continue in the short term. MLPs with natural gas gathering and processing assets include DCP Midstream Partners (DPM), EQT Midstream Partners (EQM), Enbridge Energy Partners (EEP), and Targa Resources (NGLS).

EQT Midstream forms ~7.60% of the Alerian MLP ETF (AMLP). Both AMLP and the ETRACS Alerian MLP Infrastructure Index ETN (MLPI) track the Alerian MLP Infrastructure Index (AMZI). The above graph shows the weekly natural gas spot prices at Henry Hub—the national benchmark for US natural gas prices.

Impact on MLPs

There are two ways that natural gas prices affect energy MLPs. One way is a direct impact. It’s relevant for MLPs with direct exposure to commodity prices. We’ll discuss how natural gas prices affect MLPs in the next part of this series. The second way is an indirect impact. Lower prices, in the long run, may affect natural gas production levels. This hurts MLPs engaged in natural gas gathering, processing, transporting, and related activities.

In this series

Monitoring MLP sector indicators can help investors understand the current performance of energy MLPs. It can help predict their future performance. This weekly series is designed to keep you updated on the latest developments in the energy MLP sector. It covers movements in key indicators that impact the performance of energy MLPs. This will help you make informed decisions about your investments in energy sector MLPs.

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