Midstream energy infrastructure companies are engaged in the transportation, storage, gathering, processing, and distribution of natural gas, natural gas liquids, crude oil, and other hydrocarbons. Midstream assets, situated between the well head and end consumer, represent a “must-run” link and earn a fee or fee-like margin based on volume rather than commodity price.
We believe that energy infrastructure investments offer an attractive risk/reward proposition with potential increasing distribution growth and attractive current income supported by healthy fundamentals. In our view, these companies are positioned to continue to benefit from structural tailwinds as demand expectations for natural gas increase.
Learn more with Invesco’s SteelPath energy infrastructure team in this video series.
Midstream companies typically generate stable and predictable cash flows due to long-term contracts and fee-based revenue models based on volume rather than commodity price. Our quarterly infographic “The state of the midstream energy infrastructure sector” provides updated fundamentals, including free cash flow yield and valuations.
Backed by their fee-based business model, the midstream asset class has typically provided compelling yields compared to other yielding asset classes such as real estate, utilities or fixed income.
The sector is experiencing healthy tailwinds as demand for natural gas and liquified natural gas (LNG) is meaningfully increasing and expected to continue to do so, driven by volume growth for data centers to power artificial intelligence and natural gas exports. Read more in “Natural gas demand expectations continue to increase, supporting our midstream growth outlook.”
Historically, midstream equities have shown resilience compared to broader markets during periods of economic uncertainty. This stability is partly due to the essential nature of energy infrastructure. To learn more about our analysis, read “Midstream fundamentals vs. tariffs and market turmoil.”
The Invesco SteelPath team provides a monthly update for the midstream sector including performance, news and a “Chart of the Month”. Read our current commentary in “SteelPath commentary on the midstream energy infrastructure industry.”
Overall, midstream energy infrastructure may be a compelling investment option for those looking for attractive income and growth potential, while also considering the sector-specific risks.
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Important information
All data sourced from Bloomberg L.P. unless otherwise stated.
Midstream equities are represented by the Alerian MLP Index.
An investment cannot be made into an index. Past performance does not guarantee future results.
The opinions referenced above are those of the author. These comments should not be construed as recommendations but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations. The opinions are based on current market conditions and are subject to change. They may differ from those of other Invesco investment professionals.
Most MLPs operate in the energy sector and are subject to the risks generally applicable to companies in that sector, including commodity pricing risk, supply and demand risk, depletion risk and exploration risk. MLPs are also subject to the risk that regulatory or legislative changes could eliminate the tax benefits enjoyed by MLPs, which could have a negative impact on the after-tax income available for distribution by the MLPs and/or the value of the portfolio’s investments. Although the characteristics of MLPs closely resemble a traditional limited partnership, a major difference is that MLPs may trade on a public exchange or in the over-the-counter market. Although this provides a certain amount of liquidity, MLP interests may be less liquid and subject to more abrupt or erratic price movements than conventional publicly traded securities. The risks of investing in an MLP are similar to those of investing in a partnership and include more flexible governance structures, which could result in less protection for investors than investments in a corporation. MLPs are generally considered interest-rate-sensitive investments. During periods of interest rate volatility, these investments may not provide attractive returns.
Energy infrastructure MLPs are subject to a variety of industry-specific risk factors that may adversely affect their business or operations, including those due to commodity production, volumes, commodity prices, weather conditions, terrorist attacks, etc. They are also subject to significant federal, state and local government regulation.
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