Some key observances by Fitch in its broad sector call:
- Crude oil and refined products pipelines should have increases in throughput volumes and are expected to benefit from the FERC’s inflation adjusted tariff index.
- Expects North American gas prices to remain low in 2012 on production of lower cost shale gas and the record high levels of gas in storage heading into the winter heating season.
- Low prices could prompt increased demand due to coal-to-gas switching for power generation…
- A modest increase in demand for refined products.
- Shifts in production towards emerging unconventional production basins and liquids-rich plays will drive industry growth…
- For midstream service companies, commodity price sensitivity is a key credit consideration in 2012.
Fitch does view recontracting risk in the longer term as a concern for natural gas pipelines and MLPs and believes that new supply could displace traditional supply and affect capacity utilization.
Perhaps this is the largest consideration of all… Fitch does not believe that a double-dip recession or increased environmental and regulatory costs will materially impact credit quality for natural gas pipelines. It went on to note, “Cash flow and earnings stability provided by long-term capacity reservation contracts will mean stable credit quality across the sector over the next several years.”
Crude oil and refined product pipelines were put in a different boat since these would see lower volumes in another recession. If this were to occur, it could impact credit quality but only if throughput declines were significant.
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JON C. OGG