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Natural Gas Prices Fell for the Fourth Straight Week, Hurts MLPs

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US natural gas fell below $1.8

NYMEX near-month Henry Hub natural gas futures contracts fell marginally during the week ending February 26, 2016. Natural gas prices fell 0.7% to close at $1.79 per MMBtu (British thermal units in millions) on February 26. Prices fell 8.2% in the previous week and closed at $1.80 per MMBtu. Warmer winter weather in the US impacted the demand for natural gas.

According to a weekly report from the EIA (U.S. Energy Information Administration), US natural gas inventories fell by 117 Bcf (billion cubic feet) in the week ending February 19. Natural gas inventories remain higher than the 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 that natural gas prices impact energy MLPs:

  • The first way is direct. This is relevant for MLPs with direct exposure to commodity prices.
  • The second way is indirect. Sustained low prices impact natural gas production levels. This 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), 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 the top energy sector MLPs.

What we’ll cover in this series

Monitoring MLP sector indicators can help investors understand MLPs’ performances. It can also help investors predict MLPs’ future performances. This weekly series will keep you updated on the latest developments in the MLP energy sector. The series covers movements in key indicators that impact MLPs’ performances to help you make informed decisions about your investments.

In the next part of this series, we’ll look at how natural gas prices impact MLPs.

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