US natural gas
NYMEX near-month Henry Hub natural gas futures contracts fell 3.6% during the week ended August 5, 2016, to close at $2.77 per MMBtu (million British thermal units) on the day.
Prices had risen by 3.6% in the previous week, closing at $2.88 per MMBtu. US natural gas (UNG) fell during the week despite bullish inventory data by the EIA (U.S. Energy Information Administration).
According to the weekly report, US natural gas stocks posted a net withdrawal of 6 Bcf (billion cubic feet) for the week ended July 29 compared to the five-year average and last year’s net injection of 54 Bcf and 41 Bcf, respectively.
According to the EIA, “This is only the third time ever that net withdrawals from working gas stocks were reported on a national basis during the summer months.” This was due to the effect of strong demand from power utilities. Higher natural gas demand from power utilities benefits MLPs such as Enable Midstream Partners (ENBL) 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:
- Direct: This is mostly relevant for MLPs involved in natural gas sales, gathering, and processing.
- 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. Williams Partners’ (WPZ) operating performance has been negatively impacted by production related shut-ins.
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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. We’ll cover movements in key indicators that impact MLPs’ performances to help you make informed decisions about your investments.