The energy sector is often a roller coaster ride, with prices fluctuating wildly due to geopolitical events, economic conditions, and supply-demand imbalances. However, within this volatile landscape, there’s a relatively stable corner that often goes overlooked: the midstream sector.

Unlike upstream companies, which focus on exploration and production, and downstream companies, which refine and distribute products, midstream companies provide essential transportation and storage infrastructure. Think of them as the pipelines and storage tanks that connect the oil and gas fields to refineries and distribution points.

Why many believe midstream is stable?

• Fee-based revenue: Midstream companies primarily earn revenue through fees charged for transporting and storing oil and gas. This means their income is less directly tied to commodity prices compared to upstream and downstream players.
• Long-term contracts: Many midstream companies have long-term contracts with producers, utilities and refiners, often providing a steady stream of income.
• Resilience to market shocks: Even during periods of market turmoil, midstream companies often continue to generate stable cash flow due to the essential nature of their services. In fact, some companies saw growth in cash flow during the COVID-19 lockdowns.

While midstream may not offer the same level of excitement as upstream or downstream, it often provides a more predictable and potentially less risky investment opportunity for those seeking exposure to the energy sector.