Natural gas prices
NYMEX (New York Mercantile Exchange) near-month Henry Hub natural gas futures contracts rose last week compared to the previous week. Natural gas prices closed at $2.69 per MMBtu (million British thermal units) on September 11.
Natural gas prices closed at $2.65 for the week ended September 4. Forecasts suggest warmer weather in some parts of the United States. Natural gas is used to generate power, so cooling demand during warmer months drives demand for natural gas.
According to a weekly report from the EIA (U.S. Energy Information Administration), natural gas inventories rose by 68 Bcf (billion cubic feet) for the week ended September 4. The rise was lower than what analysts expected, contributing to the rise in prices. 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, which is 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. In the long run, lower prices 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), Energy Transfer Partners (ETP), 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, which can help predict future performance. This weekly series will help 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 MLPs.