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Natural Gas Prices Rose and Impacted MLPs

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US natural gas prices rose

NYMEX near-month Henry Hub natural gas futures contracts rose last week compared to the previous week. Natural gas prices closed at $2.21 per MMBtu (British thermal units in millions) on November 27. The previous week, they closed at $2.14 per MMBtu. According to a weekly report from the EIA (U.S. Energy Information Administration), US natural gas inventories rose by 9 Bcf (billion cubic feet) in the week ending November 20. The rise was higher than analysts expected. The natural gas inventories remained higher than the five-year average.

Rising natural gas inventories, combined with estimates of a warmer winter, 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 impact energy MLPs. One way is a direct impact. This is relevant for MLPs with direct exposure to commodity prices. The second way is an indirect impact. Sustained low prices impact natural gas production levels. This hurts MLPs engaged in natural gas gathering, processing, transporting, and related activities. In the next part of this series, we’ll look at how natural gas prices impact MLPs.

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). DCP Midstream Partners 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 the 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 impact MLPs’ performance, so you can make informed decisions about your investments.

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