Natural gas could be a bright spot for the midstream segment as oil sells off.
Crude oil prices have seen significant volatility recently, influenced by tariffs and escalating trade tensions between the U.S. and China. Oil prices reached a four-year low in the past week, weighing on sentiment for the broader energy sector.
See more: Tariff Tantrum: Addressing Questions on Oil & Midstream
Despite the heightened volatility, midstream/MLPs have remained resilient compared to other energy subsectors. This is due to the segment’s fee-based business models with stable cash flows and less commodity price exposure.
Additionally, more of the Alerian Energy Infrastructure ETF (ENFR ) by weight is in midstream names focused on natural gas infrastructure rather than crude or petroleum products. Furthermore, companies predominantly operating natural gas assets make up nearly 71% of ENFR by weight as of April 10.
ENFR provides exposure to the Alerian Midstream Energy Select Index (AMEI). The index is a composite of North American energy infrastructure companies, including C-corps and MLPs.
Midstream companies transport, process, and store hydrocarbons, a crucial role that generates predictable fee-based revenue. ENFR offers exposure to five midstream segments. These include pipeline transportation of natural gas, pipeline transportation of petroleum, gathering and processing, liquefaction, and storage.
Furthermore, 29% of ENFR by weight as of April 10 is in Canadian midstream names. This is relevant as Canadian names have historically performed defensively in periods of market volatility, according to Stacey Morris, head of energy research at VettaFi.
Growth Opportunities in Natural Gas
There are many natural-gas related growth opportunities for midstream companies, with a few names in ENFR striking deals recently.
In recent months, Kinder Morgan has secured contracts to underpin three large natural gas projects: South System Expansion 4, Mississippi Crossing and Trident. The company expects the projects to contribute to significant future growth once in service.
Additionally, Williams Companies (WMB) entered an agreement to provide on-site natural gas and power generation infrastructure for an unnamed large, investment-grade company.
Finally, Energy Transfer LP (ET) recently entered into a long-term agreement with CloudBurst Data Centers to supply natural gas directly to a data center. The midstream company said in February that it is in discussions with a number of data center developers. It expects this to be the first of many agreements to supply, store, and transport natural gas to fuel data centers.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for ENFR, for which it receives an index licensing fee. However, ENFR is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of ENFR.
