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June 2, 2020updated 25 Nov 2021 10:40am

Impact of Covid-19 on North American oil and pipeline sector

By GlobalData Energy

Weak economic outlook coupled with the impact of Covid-19 has hit the oil and gas industry in general, the North American oil and gas pipeline sector being no exception. As a result, major upcoming pipeline projects either being stalled or delayed in the region. Some of the major projects that have been stalled or delayed include Liberty Oil (2,172 km) and Red Oak (1,208 km).

To tide over Covid-19 and industry slowdown, North American oil and gas pipeline companies are reducing capex of upcoming projects. Phillips 66 has suspended additional capital spending on the major pipeline projects such as Red Oak and Liberty Oil. Additionally, these operators have also been deferring financial investment decisions (FIDs), and are laying off their workforce to keep the operations going. One of the renowned North American pipeline operators, Enlink Midstream, has reduced nearly 40% of its capital spending for the year 2020, besides downsizing 20% of its workforce. On similar line, Tellurian Inc, based out of the US, has reduced 40% of its employees and has delayed its Driftwood project to improve profitability.

While reducing capex has been one of the popular choices for several of the pipeline companies to weather out the current crisis, few companies have implemented novel strategies to see off these challenging times. For example, the Gray Oak pipeline has leveraged its on-system oil storage capacity of nearly a million barrels, to meet the oil storage demand of some of its customers. Similarly, the unused older portion of Line 3 in Canada has come in handy for the pipeline operator, Enbridge, to cater to the storage needs of its shippers.

The mid-term impact of the current crisis can lead to possible acquisitions in the industry, as is the case with operators of the Pioneer pipeline who have agreed on the sale of its pipeline to a subsidiary of TC Energy group, to avoid mounting losses. Additionally, pipeline operators in the region would likely reassess their current bottom lines and strategies to manage any such circumstances occurring in the near or distant future.

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