Growth in natural gas supply brings benefits and risks to pipelines

Low natural gas prices and the growth in its supply has brought a benefit and a risk for pipeline companies, according to a recent Moody’s investor report.

While the demand for natural gas has risen in response to the price drop, it has also increased the business risk for pipelines due to demand for pipeline transmission shifting from dry natural gas to crude oil and natural gas liquids. That shift — in some cases — has negated the purpose of some pipelines.

For example, the emergence of the Marcellus shale has increase demand for pipelines in the northeastern U.S, but the drilling boom has simultaneously dropped demand for west-to-east pipelines, according to Moody’s.

“The ever faster-shifting sources of supply presents a risk that a pipeline becomes underutilized and suffers falling revenues,” Moody’s wrote.

The pipeline sector has lessened this risk through diversification of its pipelines, long contracts and rate cases.

“The risk of a pipeline asset becoming stranded is low, considering the long lead time afforded by multi-year contracts and the industry’s good track record in its commercial activities,” Moody’s wrote.

The new demand for natural gas-fueled power plants is expected to be clustered between Washington, DC and Boston, California and in southern states with concentrated populations, including Florida and Texas. The impact of this growth, however, is not expected to be significant until after 2015 because of the costs associated with funding and constructing new power plants.