Midstream fundamentals vs tariffs and market turmoil

The equity markets, including energy equities, have experienced sharp declines over recent days as investors grapple with the uncertainties sparked by the rollout of U.S. tariffs. Midstream equities have not been immune, giving back recent gains but still outperforming the broader markets. In fact, through Friday, April 4, 2025, the Alerian MLP Index is down only 1.4% year-to-date on a price basis and up 0.3% once distributions are considered versus the S&P 500 Index’s 13.7% price loss and 13.4% total return loss.¹

Natural gas demand growth appears resilient

Importantly, midstream companies earning a majority of their margin from natural gas centric services account for roughly 75% of midstream sector market capitalization. (e.g.gathering, transportation, processing, fractionation, NGL logistics).² Accordingly, in our view, midstream sector participants remain well positioned to benefit from the robust outlook for U.S. natural gas demand which we believe will see little impact from U.S. tariffs or heightened trade barriers enacted in retaliation.

Domestic natural gas demand is positioned to benefit from the start-up of multiple liquified natural gas (LNG) export facilities, all underwritten by long-term supply contracts with limited exposure to tariffs. Natural gas demand is also expected to benefit from rising demand for natural gas-fueled electric generation to meet the needs of data centers and the broader trend toward “electrification of everything” including transportation, heating, and industrial processes.

Further, any incremental onshoring of manufacturing that is achieved, which appears to be a key tenet of President Trump’s underlying objectives, only adds to domestic power and natural gas demand. The administration has also often touted the contracting of additional U.S.-sourced LNG as a negotiating vehicle.

Healthy outlook remains

Therefore, despite the market turmoil currently unfolding, we believe the midstream sector offers investors an attractive distribution yield and an improving outlook for cash flow and distribution growth. In our view, these fundamentals are supported by significant and predictable natural gas volume growth that may near 25% -34% by the end of the decade.³ Further, midstream sector leverage and distribution coverage metrics remain healthy which we believe insulates sector growth plans from market volatility.