Pipeline Companies Lose Value as Oil Prices Fall
Pipeline companies are beginning to lose their lustre with investors due to a combination of crashing oil prices and tough environmental assessment processes, Reuters reported earlier this month, on the same day U.S. President Barack Obama refused a permit for TransCanada’s controversial Keystone XL pipeline.
The pipeline industry’s sector benchmark, the Alerian MLP index, has lost 32% of its value in the last year.
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“Pipeline companies have been especially popular with investors in recent years for their ability to consistently pay out and grow large dividends,” the news agency reports. “But their attractiveness has faded since at least this summer as executives at some of the biggest pipeline companies, including Plains All American LP and Kinder Morgan Inc., have warned of slower or variable dividend growth.”
Reuters says reduced investment by oil and gas companies is already reducing projected demand for new pipelines and making it harder for pipeline builders to draw investment. “In an environment where commodity prices are low,” said analyst Jeff Birnbaum of Wundelrich Securities, “it’s more challenging and more expensive to raise capital. That all makes it harder to grow.”