Crude Oil Fell 11%, Further Battering Energy MLPs
US natural gas prices fell
NYMEX near-month Henry Hub natural gas futures contracts fell last week compared to the previous week. Natural gas prices closed at $1.99 per MMBtu (British thermal units in millions) on December 11. In the previous week, they closed at $2.19 per MMBtu. According to a weekly report from the EIA (U.S. Energy Information Administration), US natural gas inventories fell by 76 Bcf (billion cubic feet) in the week ending December 4. The fall was greater than what analysts expected. The natural gas inventories remain higher than their five-year average.
High natural gas inventories combined with estimates of a warmer winter put pressure on US natural gas prices. 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 natural gas prices impact energy MLPs. One way is a direct impact. This is relevant for MLPs with direct exposure to commodity prices. The second way is an indirect impact. 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 impact 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% of the Global X MLP ETF (MLPA), an ETF that consists of 30 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, so you can make informed decisions about your investments.
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