There are several reasons why midstream companies have earned a long-term allocation in portfolios. Those include income, real asset exposure, and diversification benefits.
However, the recent inflows for this sector are likely driven by three key factors, Stacey Morris, head of energy research at VettaFi, said during an interview with Proactive on May 29. These include the constructive outlook for natural gas, defensive energy exposure, and strong dividend trends.
First, the positive outlook for North American natural gas demand growth is creating opportunities for midstream companies to develop new or expand existing pipelines with strong potential returns, Morris said. Midstream companies benefit from this growth through fee-based contracts, with insulation from natural gas price fluctuations.
“Natural gas demand growth is really being driven by rising LNG exports,” Morris said. “Electricity demand in the U.S. is growing for the first time in a long time, and that’s going to require more natural gas… It’s going to require pipelines and other infrastructure to get that natural gas where it needs to go.”
On the natural gas side, midstream companies are signing lucrative 20-year contracts to help meet growing demand.
“We also see a lot of growth for natural gas liquids (NGLs). Natural gas liquids are things like ethane and propane… There are growth opportunities across that entire value chain,” Morris added.
See more: Rising Electricity Demand Needs Natural Gas & Midstream
Additionally, midstream can be a solution for investors looking for more defensive energy exposure, Morris said. The fee-based nature of midstream offers insulation from commodity price volatility. Coupled with attractive yields, that makes it a defensive investment.
“We’re not seeing volatility in midstream expectations for 2025,” Morris said. “Across the board, companies came out and reaffirmed guidance that they had given earlier this year or in late 2024, and essentially reaffirmed their EBITDA expectations for 2025. I think that’s a really sharp contrast with some of the things you’re seeing in other sectors, where companies are having to pull guidance because of tariff uncertainty.”
Finally, the sector continues to provide compelling income through strong dividend growth. It often surpasses yields offered by utilities or REITs, Morris said. The space has continued to see strong dividend trends.
U.S. investors can access midstream companies via the Alerian Energy Infrastructure ETF (ENFR ), which is based on the Alerian Midstream Energy Select Index (AMEI).
International investors can get midstream exposure with the Alerian Midstream Energy Dividend UCITs ETF (MMLP.LN), which tracks the Alerian Midstream Energy Corporation Dividend Index.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
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