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Natural Gas Prices Fall 10%, Impacting MLPs

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US natural gas prices fall 10%

NYMEX near-month Henry Hub natural gas futures contracts fell during the week ending February 5, 2016. Natural gas prices fell 10% to close at $2.06 per MMBtu (British thermal units in millions) on February 5. Prices had risen 7% in the previous week to close at $2.30 per MMBtu. Forecasts of warmer-than-normal weather contributed to the fall last week.

According to a weekly report from the EIA (U.S. Energy Information Administration), US natural gas inventories fell by 152 Bcf (billion cubic feet) in the week ending January 29. The fall was less than what analysts expected. It contributed to a fall in prices. Natural gas inventories remain higher than their five-year average.

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:

  1. One impact is direct. This is relevant for MLPs with direct exposure to commodity prices.
  2. The second impact is indirect. 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 affect MLPs.

MLPs with natural gas gathering and processing assets include DCP Midstream Partners (DPM), Tallgrass Energy Partners (TEP), Enbridge Energy Partners (EEP), and Summit Midstream Partners (SMLP). DCP Midstream Partners forms ~2.4% of the Alerian MLP ETF (AMLP). AMLP is an ETF that invests in top energy sector MLPs.

What we’ll cover in this series

Monitoring MLP sector indicators can help investors understand MLP performance 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 impact MLP performance to help you make informed decisions about your investments.

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