Investors may be surprised to learn midstream companies have an essential role in supporting the energy transition.
Midstream companies’ growth opportunities remain constructive, with the energy transition being a key long-term opportunity for the space.
Companies operating in midstream include those involved in transporting, storing, and processing hydrocarbons. Most think of midstream as pipelines.
Pipeline companies provide services that connect production to consumption, a service that will be particularly important as efforts to transition to a renewable energy future advance.
Both renewables and fossil fuels will be necessary to satisfy future energy demand. The projected increases in both population and energy consumption can’t be supported by renewables alone. Importantly, increases in energy consumption enable quality-of-life improvements.
Energy Addition
Efforts to electrify everything — from cars to stoves — as well as to increase access requires more electricity than is currently produced. Wind, solar, and hydrogen may play a part in increasing the energy supply. However, natural gas will continue to need to have a leading role in generating more electricity, making pipeline companies essential for the energy transition to work.
See more: “A Common Sense Approach to the Energy Transition”
Additionally, traditional hydrocarbons’ energy density, availability, and ease of transport make them advantageous.
Furthermore, midstream companies support the use of renewable fuels and will play an important role in transporting captured carbon. Carbon capture, utilization, and sequestration (CCUS) is receiving significant government support due to the Inflation Reduction Act (IRA).
Midstream companies are supporting CCUS projects, with more opportunities expected to materialize over time. Midstream companies including EnLink Midstream (ENLC), Enterprise Products Partners (EPD), and Western Midstream (WES) have struck deals to transport captured carbon for ExxonMobil (XOM) and Occidental (OXY).
Last year, MSCI upgraded Enterprise Products Partners LP’s (EPD) ESG rating from a BBB to an A. Enterprise is a leading North American provider of midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, refined products, and petrochemicals.
See more: “MSCI Upgrades Midstream Company Enterprise’s ESG Rating to ‘A’”
ETFs Offering Exposure to Midstream Companies
Two ETFs that offer exposure to midstream companies are the Alerian MLP ETF (AMLP) and the Alerian Energy Infrastructure ETF (ENFR).
AMLP’s underlying index is a capped, float-adjusted, cap-weighted composite of energy infrastructure MLPs. Included companies earn most of their cash flow from midstream activities.
ENFR’s underlying index is a composite of North American midstream energy infrastructure companies. The index includes MLPs (25%) and corporations (75%) engaged in the pipeline transportation, storage, and processing of energy commodities.
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 AMLP and ENFR, for which it receives an index licensing fee. However, AMLP and ENFR are 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 AMLP and ENFR.