US natural gas
NYMEX near-month Henry Hub natural gas futures contracts rallied for the sixth consecutive week last week. Natural gas prices rallied 12.2% during the week to close at $2.987 per MMBtu (million British thermal units) on July 1. Prices rose 1.5% in the previous week and closed at $2.662 per MMBtu. US natural gas prices continued to rise last week on expectations of higher summer demand from power utilities and a slightly bullish inventory report from the EIA (Energy Information Administration).
According to the weekly report from the EIA, US natural gas inventories posted a net injection of 42 Bcf (billion cubic feet) for the week ending June 24 compared to the five-year average and last year’s net injection of 78 Bcf and 73 Bcf, respectively. This injection resulted in a slight decline in the natural gas surplus compared to the five-year average. The decline in the net injection is due to the combined effect of higher demand from power utilities and lower production. Higher natural gas demand benefits MLPs like EQT Midstream Partners (EQM) and Williams Partners (WPZ).
The above graph shows the weekly near-month natural gas futures 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 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), MPLX 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.
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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’ performance to help you make informed decisions about your investments.