The Winds of Change Are Blowing in the Midstream Energy Space

The ALPS Alerian MLP ETF (NYSEArca: AMLP), the king among exchange traded funds tracking master limited partnerships (MLPs), is higher by 35% year-to-date.

That’s confirmation that the energy sector is on the mend and that investors still love big yields (AMLP yields 10.14%). However, investors may not want to get hung up on what lifted AMLP last week or last month because the winds of change are blowing for midstream energy companies.

At the Energy Infrastructure Council (EIC) Investor Conference in Las Vegas, Alerian analyst Mauricio Samaniego documented the conversation about midstream’s evolving role in the booming renewable energy realm.

“Among the discussions, panelists emphasized the difficulties of the energy transition and the myriad of challenges for renewable energy, alluding that carbon capture and hydrogen could provide solutions to decarbonize that could also help ensure energy security throughout the energy transition,” notes Samaniego.

AMLP 1 Year Performance

AMLP’s Greener Future

There was a time when the primary reasons to embrace MLPs were higher levels of income and lower correlations to oil and natural gas prices. Owing to firmer balance sheets and recently strong earnings, many MLP components are at least maintaining, if not growing, distributions and share buyback plans are in the works.

However, plenty of AMLP member firms seeing seismic shifts developing in the energy space, and getting wise to the fact that they need to evolve with the times. That means embracing renewables or risk being left behind.

At the EIC conference, “panelists emphasized the growing pressure to decarbonize and alluded to carbon capture and hydrogen leveraging existing energy infrastructure to provide viable solutions, particularly for hard-to-abate sectors critical to the economy,” added Samaniego.

Unlike their integrated oil counterparts, midstream names can more nimbly transition to a low carbon future because they already control the infrastructure assets that are vital to ensuring hydrogen, solar, and wind become cost-efficient, dependable power sources.

“Midstream companies provide the backbone to facilitate the use of cleaner energy and are likely to benefit from short and long-term clean energy opportunities as progress is made around renewable fuels, carbon capture, and hydrogen,” concluded Alerian’s Samaniego.

Other funds with exposure to income-generating energy assets include the VanEck Vectors Energy Income ETF (EINC) and the Global X MLP ETF (NYSEArca: MLPA).

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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.