Moody's, the leading global credit rating, research and risk analysis firm, said that the financial outlook for pipeline companies worldwide is improving due to a steadying in oil and natural gas markets.
As recently as last June, amid the drop in fuel demand caused by the coronavirus pandemic, Moody's had assigned a negative rating to the sector, which it adjusted to "stable" on Friday.
"While the broader energy sector’s ongoing demand and supply balance remains uncertain, the exploration and production segment has steadied, particularly with stronger natural gas fundamentals," Moody's report read. "The rapid, sharp decline in oil production in mid-2020 has abated and achieved some stability, propping up liquids throughput."
But the credit agency also warned that the sector faced risk from continued bankruptcies amongst upstream oil companies, struggling to turn a profit at current commodity prices. And with lower capitol spending expected next year, future profits in the pipeline sector will be, "more challenging."
"Decreasing volumes of oil and gas will lead to an inflection point in the midstream sector's cash flow, as E&P customers slash capitals pending and renew or renegotiate contracts. Rising regulatory scrutiny will make it harder to win social licenses to build interstate pipelines and other large projects, slowing investment, and companies will increasingly need to finance themselves as capital access tightens," said the report.