Fitch: Mixed outlooks for US midstream subsectors, given persistent headwinds

Commodity price weakness continues with no relief in sight in the near term, according to Fitch Ratings. Despite this, the credit ratings and sector outlooks for US pipeline and midstream assets are generally stable. However, Fitch remains negative on midstream services, particularly gathering and processing which has a negative rating and sector outlook.

Fitch's outlooks cover the crude oil and refined products pipelines, midstream services, master limited partnerships, and natural gas pipeline segments.

In the upcoming year, natural gas, crude oil and refined product pipelines should generate fairly stable cash flows given the lack of direct commodity price exposure. Given expectations for lower domestic crude production, crude pipeline volumes are likely to fall in the mid-single digits. Refined products pipelines are expected to have a modest uptick driven by demand for lower priced products such as gasoline. Natural gas pipelines should be insulated from production and price changes, as well, given their contract profiles, though re-contracting risk on underutilized systems remains a concern. Should commodity prices remain under pressure over a longer-term timeframe, Fitch would expect a pullback or delay in spending on new infrastructure projects.

For midstream services, continued low commodity prices, increased counterparty risk, potential volume declines, constricted capital market access and rising leverage could pressure ratings and Outlooks for midstream services issuers. Slower demand for midstream services will be driven by moderating NGL production growth. Fitch expects low NGL prices and falling demand to drive negative headwinds for growth in the midstream services segment.

Across all of the sectors, liquidity remains sufficient though reliance on revolver borrowings is expected in the near to medium term. Debt maturity schedules are manageable. Access to capital market access should remain sufficient though more costly, particularly for low-investment-grade and all high-yield issuers.

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