Natural gas prices
NYMEX (New York Mercantile Exchange) near-month Henry Hub natural gas futures contracts rose marginally last week compared to the previous week. Natural gas prices closed at $2.715 per MMBtu (million British Thermal Units) on August 28.
Natural gas prices closed at $2.697 for the week ended August 21. They rose on Tuesday and Wednesday on forecasts of warmer weather in the United States. Natural gas is used to generate power, whose demand in turn is driven by cooling demand during warmer months.
Natural gas prices fell on Thursday due to a report showing an increase in natural gas inventory. According to a weekly report from the EIA (U.S. Energy Information Administration), natural gas inventories rose by 69 Bcf (billion cubic feet) for the week ended August 21. Natural gas inventories remain higher than their five-year average.
Impact on MLPs
Natural gas prices fell significantly after 2008. Since then, prices have generally remained low. This trend should continue in the short term. The above graph shows the weekly near-month natural gas futures prices at Henry Hub, the national benchmark for US natural gas prices.
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 look at 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.
MLPs with natural gas gathering and processing assets include DCP Midstream Partners (DPM), EQT Midstream Partners (EQM), Tallgrass Energy Partners (TEP), and Summit Midstream Partners (SMLP). SMLP forms 4.3% of the Global X Junior MLP ETF (MLPJ), which targets small-cap MLPs. The Global X MLP ETF (MLPA), on the other hand, focuses on large-cap MLPs.
In this series
Monitoring MLP sector indicators can help investors understand the 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 affect energy MLPs’ performance. This will help you make informed decisions about your investments in energy sector MLPs.