US natural gas
NYMEX near-month Henry Hub natural gas futures contracts rose last week after three consecutive weekly declines. Natural gas prices rose 5.2% during the week to close at $2.169 per MMBtu (million British thermal units) on May 27. Prices fell 1.6% during the previous week and closed at $2.062 per MMBtu. Natural gas prices jumped on Friday following a slightly bullish natural gas inventory report from the EIA (Energy Information Administration) and warm weather forecasts, fueling expectations for higher demand from power utilities. Higher natural gas demand benefits MLPs like EQT Midstream Partners (EQM) and Williams Partners (WPZ).
According to the weekly report, US natural gas inventories posted a net injection of 71 Bcf (billion cubic feet) for the week ending May 20 compared to the five-year average and last year’s net injection of 97 Bcf and 106 Bcf, respectively. This net injection resulted in a slight decline in the natural gas surplus compared to the five-year average.
The above graph shows the weekly near-month natural gas future prices at Henry Hub—the national benchmark for US natural gas prices.
Impact on MLPs
There are two ways that natural gas prices impact energy MLPs.
- The first way is direct. This way is mostly relevant for MLPs involved in natural gas sales, gathering, and processing. MLPs with natural gas gathering and processing assets include Enable Midstream Partners (ENBL), Tallgrass Energy Partners (TEP), MLPLX LP (MPLX), and Summit Midstream Partners (SMLP).
- The second way is indirect. Sustained low prices impact production and thus natural gas throughput volumes. At the same time, low natural gas prices lead to higher demand from utilities and industrial customers.
What we’ll cover in this series
Monitoring MLP sector indicators can help investors understand MLPs’ performance. It can also help investors predict MLPs’ future performance. 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.