3 Midstream Stocks Poised to Withstand Energy Volatility

During the initial phase of the pandemic, when vaccines were unavailable, the world faced significant uncertainties. Crude oil prices experienced an unprecedented plunge, dropping to a negative $36.98 per barrel on April 20, 2020. However, the rapid development and rollout of vaccines facilitated the gradual reopening of economies, leading to a remarkable recovery in the pricing of West Texas Intermediate (WTI) crude, which soared to $123.64 per barrel by March 8, 2022. Oil price data are per the U.S. Energy Information Administration.

This highlights the inherent exposure of most energy companies to extreme volatility in commodity prices. However, unlike most energy companies, Kinder Morgan, Inc. KMI, MPLX LP MPLX and The Williams Companies, Inc. WMB are not highly vulnerable to commodity prices.

Fueling Resilience: Power of Midstream Business

Although the fate of energy players is highly dependent on oil and gas prices, stocks in the midstream space have lower exposure to volatility in commodity prices than oil and gas producers. This is because midstream players generate stable fee-based revenues since the transportation and storage assets are being booked by shippers for the long term. Hence, their business model is relatively low-risk, which indicates considerably less exposure to oil and gas prices and volume risks.

3 Stocks Less Vulnerable to Volatility: KMI, MPLX, WMB

Kinder Morgan: With its operating interests in oil and gas pipeline networks spread across 83,000 miles, KMI is a leading energy infrastructure company in North America. It derives most of its earnings from take-or-pay contracts, generating stable fee-based revenues.

The midstream energy major is poised to grow due to its business model, which is relatively resilient to volume and commodity price risks.

MPLX: MPLX’s midstream business comprises transporting crude oil and refined products. Thus, the partnership generates stable cash flows from its long-term contracts with the shippers. The partnership’s crude oil and natural gas gathering systems also generate stable fee-based revenues.

The Williams Companies: It is well-poised to capitalize on the mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.

With its pipeline networks spread across more than 30,000 miles, The Williams Companies connects premium basins in the United States to the key market. WMB’s assets can meet 30% of the nation’s natural gas consumption, which is utilized for heating purposes and clean-energy generation.

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This article originally published on Zacks Investment Research (zacks.com).

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