US natural gas prices fell
The NYMEX (New York Mercantile Exchange) near-month Henry Hub natural gas futures contracts fell last week compared to the previous week. Natural gas prices closed at $2.29 per MMBtu (British thermal units in millions) on October 23. The prices had closed at $2.43 per MMBtu in the previous week. According to a weekly report from the EIA (U.S. Energy Information Administration), US natural gas inventories rose 81 Bcf (billion cubic feet) for the week ending October 16. The rise was less than what analysts had expected. Natural gas inventories remain higher than their five-year average.
Natural gas prices in perspective
The above graph shows the weekly near-month natural gas futures prices at Henry Hub, the national benchmark for US natural gas prices. Natural gas prices fell significantly after 2008. Since then, prices have generally remained low. The prices have remained below $3 per MMBtu since May 2015.
Impact on MLPs
There are two ways 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, which 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), Southcross Energy Partners (SXE), Tallgrass Energy Partners (TEP), and Summit Midstream Partners (SMLP). DPM forms ~2% of the Global X MLP ETF (MLPA).
In this series
Monitoring MLP sector indicators can help investors understand the performance of energy MLPs and predict future performance. This weekly series will keep you updated on the latest developments in the energy MLP sector. The series covers movements in key indicators that affect MLP performance, so you can make informed decisions about your investments.