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Midstream Players Settle for Fee Cut to Survive COVID-19 Crisis
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Many analysts initially believed that midstream energy players will survive the pandemic since their business model is relatively less exposed to the coronavirus-induced oil price volatility. However, the scenario has changed since midstream players are now ready to settle for lower fees so that shippers continue to use their pipeline networks to transport oil to the Gulf coast from Texas, as reported by Bloomberg.
The source added that from roughly $3 per barrel at 2020-beginning, the premium for transporting crude to the Gulf Coast export hubs has plunged to below $1 per barrel. In fact, the lower premium, since the pandemic has severely hit demand for midstream assets, is not sufficient enough to meet transport fees for pipeline operators in the prolific Permian basin.
Coronavirus Hits Energy Demand Hard
The pandemic has dented global energy demand, with most people not traveling to offices and instead working from home. Since 2020-beginning, when the West Texas Intermediate (WTI) crude was trading above $60 per barrel mark, the commodity is now around $40.
Low oil price has convinced explorers and producers to remove rigs from oil and gas plays. In the United States, the total count of rigs (combining both land and offshore rigs) plunged to 257 in September from January’s 791, per data of Baker Hughes Company (BKR). With a significant drop in drilling rigs, production volumes of the commodity have declined. Notably, U.S. Energy Information Administration (EIA), in its short-term energy outlook stated that average production of crude in the United States will drop to 11.4 million barrel per day in 2020 from 12.2 million barrel per day in 2019.
Midstream Stocks Falter
Lower crude production has in turn hurt demand for midstream infrastructure, including pipeline networks and storage assets. Thus, several midstream energy firms are finding no other way but to offer discounts to shippers to survive the pandemic.
Moreover, for the BridgeTex pipeline system, Magellan Midstream Partners LP is now in negotiation with some of its shippers for reduced tariffs, added the source. Additionally, Energy Transfer LP (ET - Free Report) , a leading midstream energy player, has reportedly aimed for a volume incentive program for shippers qualifying for the Permian Express 2 and 3 pipelines.
Conclusion
With relatively lower exposure to crude price volatility as compared to upstream and downstream players, midstream energy stocks are still significantly vulnerable to the coronavirus pandemic. Thus, as long as people choose to work remotely, the slump in midstream energy business will continue.
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Midstream Players Settle for Fee Cut to Survive COVID-19 Crisis
Many analysts initially believed that midstream energy players will survive the pandemic since their business model is relatively less exposed to the coronavirus-induced oil price volatility. However, the scenario has changed since midstream players are now ready to settle for lower fees so that shippers continue to use their pipeline networks to transport oil to the Gulf coast from Texas, as reported by Bloomberg.
The source added that from roughly $3 per barrel at 2020-beginning, the premium for transporting crude to the Gulf Coast export hubs has plunged to below $1 per barrel. In fact, the lower premium, since the pandemic has severely hit demand for midstream assets, is not sufficient enough to meet transport fees for pipeline operators in the prolific Permian basin.
Coronavirus Hits Energy Demand Hard
The pandemic has dented global energy demand, with most people not traveling to offices and instead working from home. Since 2020-beginning, when the West Texas Intermediate (WTI) crude was trading above $60 per barrel mark, the commodity is now around $40.
Low oil price has convinced explorers and producers to remove rigs from oil and gas plays. In the United States, the total count of rigs (combining both land and offshore rigs) plunged to 257 in September from January’s 791, per data of Baker Hughes Company (BKR). With a significant drop in drilling rigs, production volumes of the commodity have declined. Notably, U.S. Energy Information Administration (EIA), in its short-term energy outlook stated that average production of crude in the United States will drop to 11.4 million barrel per day in 2020 from 12.2 million barrel per day in 2019.
Midstream Stocks Falter
Lower crude production has in turn hurt demand for midstream infrastructure, including pipeline networks and storage assets. Thus, several midstream energy firms are finding no other way but to offer discounts to shippers to survive the pandemic.
According to Bloomberg, for some of its current shippers utilizing the Eagle Ford pipeline, Kinder Morgan, Inc. (KMI - Free Report) is now offering almost a 50% discount. The stock current carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Moreover, for the BridgeTex pipeline system, Magellan Midstream Partners LP is now in negotiation with some of its shippers for reduced tariffs, added the source. Additionally, Energy Transfer LP (ET - Free Report) , a leading midstream energy player, has reportedly aimed for a volume incentive program for shippers qualifying for the Permian Express 2 and 3 pipelines.
Conclusion
With relatively lower exposure to crude price volatility as compared to upstream and downstream players, midstream energy stocks are still significantly vulnerable to the coronavirus pandemic. Thus, as long as people choose to work remotely, the slump in midstream energy business will continue.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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