The U.S. natural gas pipeline industry faces increased costs from expected stiffer safety regulations now unfolding, but the credit standing of the major pipeline operators should not suffer, according to a report released Wednesday by Standard & Poor’s Ratings Service (S&P).

Several catastrophic events, including last year’s fatal pipeline rupture and explosion in San Bruno, CA, prompted S&P to publish a brief ratings analysis on what the reaction to these recent energy tragedies is likely to mean for respective industries. S&P comes to three initial conclusions:

S&P is sure there will be higher costs, but it leaves as very uncertain how much higher that turns out to be. Therein lies a challenge for the pipeline and nuclear power plant sectors. For pipelines, this uncertainty will be centered on the midstream operators, according to S&P. New pipeline integrity management guidelines are going to surely cost more to carry out, the rating agency said.

“Maintenance capital spending will undoubtedly increase, which will weigh on companies’ cash flows,” S&P said. “But we don’t know the magnitude and timing of such spending, or whether regulators will allow these companies to pass along these higher costs to customers.”

A particular stumbling block is the fact that many pipelines have portions that predate 1970, and there are very poor records on any of the major interstate pipelines before 1970. Poor record-keeping already has been identified in the still-unfolding federal and state regulatory investigations of Pacific Gas and Electric Co.’s pipeline system operations prior to its Line 132 failing in San Bruno.

S&P emphasized that the federal Pipeline Hazardous Materials and Safety Administration (PHMSA) earlier this month issued a new Distribution Integrity Management Final Rule, which effectively extends the traditional integrity maintenance programs on high-pressure transmission pipelines to local utility distribution pipeline systems. This raises the ante by adding tens of thousands of miles of gas and hazardous liquid pipelines that will need to be tested and maintained much more closely.

“This [new distribution pipeline] regulation requires local gas distribution companies to evaluate the risks on their pipeline systems to determine their fitness for service, and to take action to address those risks,” said the S&P report, pointing out that distribution systems are a vast mix for materials — from plastic to cast iron pipelines dating back to the 1940s — and can include uncoated bare steel.

Interstate high-pressure transmission pipelines — all steel — in highly populated “high consequence areas” (HCA) should all be tested and assessed by the end of next year, according to the Interstate Natural Gas Association of America (INGAA). About 87% of the national pipeline grid network in HCA locations has been checked, according to INGAA.

On the same day the S&P report was released, PHMSA started another rulemaking process that eventually could impact the pipeline outlook. The agency issued an advanced notice of proposed rulemaking, which seeks public comment on whether certain regulatory exemptions for pipelines constructed before 1970 should be eliminated and whether integrity management requirements for pipelines, which primarily apply to pipe segments in highly populated areas, should be strengthened and expanded (see Daily GPI, Aug. 25).

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.