Upstream integrated energy companies aren’t often viewed as nimble. However, many midstream counterparts, including some members of the ALPS Alerian MLP ETF (NYSEArca: AMLP), are adapting with the times.
With the domestic energy landscape rapidly evolving and a White House focused on renewable energy adoption, the era of large-scale pipeline projects may be gone. Other external forces indicate midstream operators need to get wise to the green energy boom or risk dinosaur status.
“Environmental, social and governance-oriented investors are pressuring companies that own and operate interstate gas transmission assets to decarbonize,” according to S&P Global Market Intelligence. “And many of the pipelines’ utility customers are pledging to reach net-zero carbon emissions by or before 2050 to comply with state mandates.”
More Positive News for AMLP Investors
AMLP, the largest exchange traded fund focusing on master limited partnerships, is enjoying a remarkable resurgence in 2021. The fund is higher by almost 50% year-to-date and still yields north of 10%. In other words, investors are enjoying big compensation from a play on rebounding oil prices.
However, AMLP’s 2021 bullishness may not be entirely attributable to traditional fossil fuels perking up. Some of the funds holdings are broadening their wind and solar exposure, a sensible move given the growth of those renewable sources. Moreover, technological advances may help pipeline operators become pivotal parts of the renewable energy equation.
“A range of technologies could help ensure that gas infrastructure assets do not become stranded but rather aid in the energy transition, according to Erin Blanton, a senior research scholar at Columbia University’s Center on Global Energy Policy,” notes S&P Global. “Possibilities could include the use of lower-carbon fuels such as hydrogen and biomethane that could still be used to meet demand for highly deliverable fuel supplies that can be stored long term.”
Many existing pipelines are conducive to delivering hydrogen blending, which could augur well for some AMLP components’ role in energy transition. Some AMLP components are already working on blending while others have the infrastructure in place to ease delivery of wind and solar power.
For more on cornerstone strategies, visit our ETF Building Blocks Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.