Local gas distribution companies (LDC) appear to have “lined up or have on hand” most of the natural gas supplies needed for the coming heating season, despite disruptions from Hurricane Katrina, Moody’s Investors Service said in a report issued Monday. Hurricane Rita is expected to only have a negligible impact on the physical gas supply to the LDCs.
The report, “Update On the Gas Supply And Liquidity Needs Of Gas LDCs Post Hurricane Katrina” is based on information from a sampling of 12 of the 32 LDCs the ratings credit agency now reviews.
In the report, senior analyst Edward Tan noted that high, volatile gas prices also are helping LDCs to shore up liquidity before seasonal peak borrowings and bad debt expenses that are likely if customers fail to pay higher bills.
“Hurricane Katrina has inflated the price of gas in an already tight demand-supply market,” said Tan. “Fortunately, many LDCs were well on their way toward purchasing their gas needs for the upcoming winter prior to the storm’s arrival.” Gas needed for the winter season is either already in storage or contracted for, Tan said.
Katrina’s impact, he said, has been limited to “those LDCs sourcing gas from the Gulf of Mexico, and even they have temporarily turned to alternative gas sources.”
However, higher gas prices also will mean higher peak borrowings, possible hedging costs and increases in bad debt for the LDCs. “While companies differ as to their ability to pass along the costs of hedging and expected rises in bad debt expenses, they are engaging customers in an active dialogue regarding alternative methods of paying for their heating bills and reducing the risks of having gas supplies being cut-off on account of non-payment,” Tan said.
The need for more credit for supply purchases also appears to have been addressed, Tan noted.
“Credit limits and credit terms are becoming a renewed topic of discussion among trading partners, as the same volumes of gas purchased cost more this winter than in previous heating seasons. The adequacy of credit lines becomes a more relevant factor for assessing the liquidity of various gas companies. Fortunately, for those still in need of added credit lines, the bank market is accommodating and is offering favorable terms to gas utilities.”
For more information, visit www.moodys.com.
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