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Falling Natural Gas Prices Continue to Impact Energy MLPs

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Nov. 23 2015, Published 1:45 p.m. ET

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 $2.14 per MMBtu (British thermal units in millions) on November 20 after closing the previous week at $2.36 per MMBtu. According to a weekly report from the EIA (U.S. Energy Information Administration), US natural gas inventories rose 15 Bcf (billion cubic feet) in the week ending November 13. The rise was less than what analysts had expected. Natural gas inventories remain higher than their five-year average.

Rising natural gas inventories, combined with estimates of a warmer winter, have put pressure on US natural gas prices. The above graph shows the weekly near-month natural gas futures prices at Henry Hub, the national benchmark for US natural gas prices.

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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. The second way is an indirect impact. Sustained low prices are affecting natural gas production levels, which hurts MLPs engaged in natural gas gathering, processing, transporting, and related activities. We’ll look at how natural gas prices affect MLPs in the next part of this series.

MLPs with natural gas gathering and processing assets include DCP Midstream Partners (DPM), MarkWest Energy Partners (MWE), Tallgrass Energy Partners (TEP), and Summit Midstream Partners (SMLP). DPM forms ~2% of the Global X MLP ETF (MLPA).

What to look for 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.

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