Author: Mimi Barker

The burgeoning development of shale gas plays across the U.S. has changed the playing field for long-haul pipelines, according to a report published yesterday by Standard & Poor's Ratings Services titled "The Shale Gas Boom Is Shaping U.S. Gas Pipelines' New Reality."

The booming Marcellus Shale region in New York and Pennsylvania, for instance, has diminished the need to move natural gas along traditional routes, such as to the East from the Rocky Mountain region. As a result, large stretches of pipelines are now underutilized. Why get your gas all the way from the West when new sources are opening up right next door?

Key trends for the pipeline industry today include:

• The industry is entering a new world of super-low natural gas prices and a shale gas glut.
• New shale gas production in the east has diminished the need to move natural gas along traditional west-to-east routes, leaving large stretches of pipelines underutilized.
• Companies are trying various methods to adapt from a model in which long-haul pipelines capitalized on price spreads between producing areas and consuming regions, to one to one in which pipelines' greatest value is in clearing bottlenecks and providing end-users a reliable gas supply, even when demand is high.
• Despite the industry's hiccups, we think its creditworthiness should remain largely stable.

 

"We continue to view the pipeline sector's creditworthiness as broadly stable and expect only a modest number of downgrades over the next two years. However, the shifts in the industry may hit some companies harder than others," said Standard & Poor's credit analyst Nora Pickens.

The industry is trying to regain some of the balance it has lost since the shale gas revolution began--and in this new era, adapting to new realities will be critical for all.

The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com.