Big Opportunity for Midstream in Energy Transition

Despite the weakness seen in the energy space last week as the banking crisis unfolded, nothing has changed for midstream fundamentals.

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Oil prices fell by approximately 5% each day on March 14 and 15 to levels not seen since December 2021. The commodity selloff and a general risk-off sentiment pressured energy stocks broadly, but some subsectors of energy, including midstream, weathered the volatility better than others.

Despite the recent weakness, midstream’s growth opportunities remain constructive. The energy transition is a key long-term opportunity for the midstream space, Paul Baiocchi, chief ETF strategist at SS&C ALPS Advisors, said during Bloomberg’s “ETF IQ” on Monday.

“You’ve got this big meaty stimulus coming from governments around the world from private companies focused on ‘how do we transition away from our dependency on fossil fuels?’” Baiocchi said. “Well, pipeline companies — MLPs and C-Corps — provide services that connect production to consumption of natural gas and crude oil. And those companies are important now and they’ll be important as we transition to a renewable energy future.”

Baiocchi said this move to electrify everything – from cars to stoves – will require more electricity than is currently being produced. While wind, solar, and hydrogen may play a part, natural gas will continue to need to play an essential role in generating more electricity. Thus, the pipeline companies comprising the midstream space that move natural gas are essential for the energy transition to work.

Two popular ETFs that offer exposure to the midstream space are the Alerian MLP ETF (AMLP A-) and the Alerian Energy Infrastructure ETF (ENFR ).

In the webcast on March 22, Midstream/MLPs: Can the Strong Fundamentals Persist?, SS&C ALPS Advisors and VettaFi will discuss the current energy landscape, the defensive nature of midstream, and the constructive outlook for dividends from this space.


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