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The Global Energy Transition Is Underway--Credit Implications for the Pipeline and Midstream Energy Sector

DBRS Morningstar recognizes that the intensifying climate consciousness among consumers, producers, and investors is hastening the transition away from fossil fuels to green energy sources. Consequently, countries and corporations around the world are responding by setting more-aggressive goals than previously targeted to achieve net-zero Greenhouse Gas (GHG) emissions. The biggest push globally is to reduce fossil-fuel use in the electricity generation, transportation and industrial sectors by powering these sectors with renewable energy. It is important to understand the use of renewable energy in the major markets around the world to generate electricity and the share of electricity generated from renewables relative to fossil fuels, to assess the impact of energy transition on the pipeline and midstream energy sector. Pipeline and midstream energy companies are incorporating climate risk management practices in their business plans by integrating renewable energy sources in their asset portfolios to reduce net GHG emissions from their operations and meet the clean energy needs of their customers. These initiatives could change the risk profiles of pipeline and midstream energy companies over time. In particular, because the renewable energy portfolio characteristics and the size of this exposure across companies could differ on the path to achieving net-zero emissions, DBRS Morningstar will make credit risk assessments on a case-by-case basis, assessing the relative size and cash flow from renewable energy assets in a company's portfolio, financing plans, commercial contracts, and other factors. Currently, renewable energy assets in the portfolios of some of the large pipeline and midstream energy companies are not meaningful and DBRS Morningstar assesses the credit risks with respect to the transition to net zero emissions currently as modest.