Look Into the Future - The 2021 Outlook for Key Midstream-Sector Players

There’s no question, the pressures on many U.S. midstream companies have been steadily increasing for some time now, and the past few months have really tested them. Like exploration and production companies, refiners, and others in the energy space, midstreamers have seen their well-considered plans for 2020 upended by demand destruction, commodity-price gyrations, and cutbacks in capex, drilling, and production. While it may be tempting to simply wait out the last few weeks of this crazy, unforgettable year and hope that 2021 will be better, there’s actually at least some good news out there for the midstream sector, and good reason to believe that midstreamers have been positioning themselves to financially weather whatever next year may have in store. Today, we discuss highlights from East Daley Capital’s newly issued 2021 Midstream Guidance Outlook, which focuses on key trends affecting midstream asset owners.

Each holiday season for four years now, our friends at East Daley have delved into the trends and developments they see affecting the broader midstream sector in the months ahead. In a series of reports, they also assess how the ongoing evolution of the energy industry is likely to help or hurt a couple of dozen or so representative companies, as well as which midstreamers it believes will perform better or worse than consensus expectations. The first glimpse we get is their just-release 2021 Midstream Guidance Outlook – Fight or Flight: Taking Stock of the Midstream,” which lays out their view of the key market drivers impacting midstream companies as the energy world prepares to transition from the COVID era to (fingers crossed) a long-lasting post-pandemic period. Then, over the next few weeks, we’ll see the latest edition of East Daley’s annual Dirty Little Secrets report, with Part 1 providing an even-more-detailed analysis of midstream and market fundamentals and Part 2 featuring very granular, company-by-company reviews.

Last year’s report (see What I Like About You), focused on themes ranging from anticipated crude oil pipeline overbuilds and Permian production to the need for more natural gas supply rationalization as supply at the time was outpacing demand. The collapse of global economic activity and commodity prices earlier this year due to the COVID-19 pandemic exacerbated some of these issues and completely reversed others. As we head into 2021 — finally! — significant headwinds remain because lower production estimates portend reduced capacity utilization of infrastructure in many basins. We will discuss the negative effects of this excess capacity on midstream companies in upcoming installations, but today we’ll start by looking at some positive trends for the midstream sector amid challenging industry conditions.