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With Pipeline Contract Expirations Looming, Roughly One-third Of Shipper Contracted Volumes Potentially At Risk

Energy
With Pipeline Contract Expirations Looming, Roughly One-third Of Shipper Contracted Volumes Potentially At Risk

Highlights

Pipelines with elevated levels of contracted volume in renewal status may be at risk for re-contracting at lower rates, or even non-renewal in some instances, considering increased competition from other pipelines.

Aug. 08 2018 —

  • Pipelines with elevated levels of contracted volume in renewal status may be at risk for re-contracting at lower rates, or even non-renewal in some instances, considering increased competition from other pipelines.
  • The potential for reduction or loss of pipeline revenue derived from reserved capacity has grown incrementally the last few years as abundant shale gas continues to shift the US natural gas production, cost, and demand landscapes, injecting greater uncertainty and driving more competition into the operating environment.
  • The top owners of firm contracted pipeline capacity have roughly one-third of their contracted volume either in rollover contracts or expiring by year-end 2019, according to second-quarter 2018 data filed on Form 549B with the FERC regarding interstate pipelines; intrastate pipelines are not required to report.
  • While large swaths of pipeline capacity in rollover or soon-to-expire status may be concerning, contracts on many of these pipelines are held with shippers who are related entities, such as a utility owned by the same holding company.

National Fuel Gas Co. was notable in this analysis of 15 holding companies, as it demonstrated the highest percentage, 49%, of contracted capacity in either rollover-status or set-to-expire by year-end 2019 on its two reporting pipelines, National Fuel Gas Supply Corp. and Empire Pipeline Inc. However, over half of the potentially at-risk capacity on those pipelines is held by National Fuel Gas subsidiary National Fuel Gas Distribution, the LDC arm of the company, significantly diminishing potential re-contracting risk.

Southern Company has the second-highest percentage— 46% —of contracted capacity in either rollover or expiring by year-end 2019 status, all of which is on the Southern Natural Gas Company pipeline, a joint venture between Southern Company and Kinder Morgan. However, as with National Fuel Gas Co., nearly half the potentially at-risk capacity is held by Southern Company subsidiaries, primarily gas utility Atlanta Gas Light Co., reducing re-contracting risk. An additional 20% of rollover/expiring capacity on the Southern Natural Gas Company pipeline is held by subsidiaries of SCANA Corp., while Spire Inc. utility subsidiary Spire Alabama holds about 15%. The remaining capacity is reserved by a mix of primarily small and municipal gas utilities and industrial users.

The next-largest representatives of rollover/expiring capacity were Williams Cos. subsidiary Transcontinental Gas Pipe Line, at 10%, National Grid plc gas utility subsidiary KeySpan Gas East Corp. with 8% and Consolidated Edison subsidiary Consolidated Edison Co. of New York with 5%. The remaining potentially at-risk capacity is held by a mixture of LDCs, generators and producers, with no single company logging more than 4%.

Contact us to learn about the full report or for information our deep industry data on the our platform. A team expert would be happy to help refer you to additional commentary, including a midstream industry summary and content on "How midstream contracts work".

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