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How Last Week’s Rise in Natural Gas Prices Impacted MLPs

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Dec. 4 2020, Updated 10:52 a.m. ET

US natural gas prices rise

The NYMEX (New York Mercantile Exchange) near-month Henry Hub natural gas futures contracts rose last week compared to the previous week. Natural gas prices rose to close at $2.5 per MMBtu (British thermal units in millions) on October 9. Natural gas prices had hit a three-year low to close at $2.45 per MMBtu on October 2. The prices rose steadily during the week to gain 2.1% during the week over the previous week’s close.

According to a weekly report from the EIA (U.S. Energy Information Administration), US natural gas inventories rose 95 Bcf (billion cubic feet) for the week ended October 2. The rise was slightly less than what analysts expected. Natural gas inventories remain higher than their five-year average.

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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, which can help 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.

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