Pinnacle Releases Economics of Reliability Report for the Midstream Industry

Pinnacle, a reliability data analytics company, released its Economics of Reliability report for the midstream oil & gas industry today. The report, which is the sixth installment of Pinnacle’s Economics of Reliability report series, analyzes the impact that reliability has on the midstream industry in the US and Canada.

“Optimized reliability is becoming an even more critical operational strategy for midstream operators as they navigate the economic disruption caused by COVID-19,” said Jeff Krimmel, Chief Strategy Officer at Pinnacle. ”While commodity prices have recovered, the operating profits of midstream operators dropped from 19% in 2020 to 14% in 2021, showing that these operators are capable of operating more profitably even when commodity prices are lower. As inflation and other industry challenges cause the cost base of midstream assets to grow more rapidly than revenues, midstream operators must identify and repurpose wasted spend to realize stronger profit margins.”

Pinnacle analysts estimate that the midstream industry in the US and Canada spends $29 billion per year on reliability. The report leverages data from the US Energy Information Administration (EIA) and financial reports of 20 publicly traded midstream operators headquartered in the US and Canada including Enterprise Products, Kinder Morgan, and Enbridge.

“Of the 20 midstream operators we analyzed in our report, we saw that many of them are operating at lower investment levels than historical commodity price correlations would suggest,” said Krimmel. “Additionally, within the last decade, midstream companies have aggressively taken on debt, adding larger, long-term obligations to their balance sheets. This potential allocation of capital away from further investments in their reliability programs puts pressure on existing infrastructure to maintain peak performance with minimal investment.”

New, stricter regulations also highlight the industry’s increasing focus on the reliability of existing infrastructure. On May 16, 2022, the Pipeline and Hazardous Materials Safety Administration (PHMSA), under the authority of the US Department of Transportation, will issue a new final rule that expands the safety regulations of gas gathering pipelines. The final rule, which applies to 425,000 additional miles of pipelines, will require operators to report new safety information. Many operators will need to update their reliability programs to ensure they are collecting and reporting the correct data to meet PHMSA compliance.