Impact of Covid-19 on Pipeline Sector in the US

GlobalData Energy 5 August 2020 (Last Updated August 5th, 2020 16:40)

The emergence of COVID-19 has added to the challenges of pipeline companies in the US that were already reeling under the pressure of falling energy prices.

Impact of Covid-19 on Pipeline Sector in the US

The emergence of COVID-19 has added to the challenges of pipeline companies in the US that were already reeling under the pressure of falling energy prices. Additionally, the loss of fuel demand has left these companies with little choice other than opting for measures that can plug the losses and restore cash. As a result, several pipeline companies in the country continued resorting to delaying or stalling of upcoming projects or even downsizing capital expenditure. Pipeline operators are analyzing the impact of COVID-19 on their operations and investments and are likely to remain focused on key growth projects that would ensure future sustainability.

Stalling or delaying upcoming projects has become one of the go-to measures for several of the pipeline operators in the US to arrest expenses almost instantaneously. Phillips 66, one of the owners of Red Oak and Liberty oil pipelines, has stalled these projects, which can result in pushing the start year of these projects to 2024 and 2025 respectively, from the initially planned 2021.  Enbridge Energy Partners LP, the operator of the US section of Enbridge Line 3 Replacement, has hinted a delay in construction activities, possibly pushing the start of the pipeline by a year to 2021.

Pipeline companies in the country are also looking at alternative solutions to stem expenditure by reducing capex. Enlink Midstream has reduced 40% of its capex for the year 2020, besides laying-off a fifth of its workforce. Plains All American also reduced a fifth of its capex for the year 2020 amidst the pandemic.

Owing to the dismal performance of transportation and tourism sectors, pipeline companies are pushed to come up with novel strategies for survival. As revenues of most pipeline companies are linked to energy demand that has taken a heavy hit, diversification of businesses or investment in disruptive technologies to increase operational efficiencies are some of the alternatives for these companies to bail themselves out from the current crisis. However, with the pandemic showing hardly any signs of abatement, the pipeline operators can encounter an uphill task to fully recover.