Expanding natural gas sector defies easy categorization, says Moody’s

The worldwide natural gas industry is complex – so complex that Moody's Investors Service classifies individual companies using six different categories. But a new report from the ratings agency sets out to untangle the complicated sector.
"The natural gas industry is big, with 130 rated companies in 22 countries, and some $340 bln in debt," said Moody's Vice President, Mihoko Manabe. "The overall sector operates under so many different regulatory regimes and business models that the credit evaluation of any one company could almost be a customized process."
"We rate a lot of gas company debt globally, but increasingly in areas where the gas industry and regulation is still developing and where the business model is different from those in the Americas, Western Europe, Australia, and Japan where we've long rated debt," said Manabe. "We aim to bring greater transparency, consistency, and predictability to our ratings on behalf of investors, issuers, and other interested parties."
Rather than a single, homogeneous sector, the natural gas industry is a large collection of companies performing a range of different functions. Some entities are regulated, some unregulated; some are government-owned, while others are private, and many companies are vertically integrated to perform the full gamut of gas activities. Still others have unbundled to engage in only a portion of the gas value chain, or conduct gas-related operations as part of a wider diversified business.
"Because there is no unifying business model, we have developed several methodologies for rating companies and issuers, reflecting the different credit measures associated with the production, transportation, liquefaction, or delivery of natural gas," said Manabe. "As we expand our gas industry coverage beyond established gas markets, we will review new issuers using the methodology best suited to each company's dominant characteristics."
Most issuers fall under Moody's frameworks for regulated networks, unregulated utilities, regulated utilities, pipelines, diversified gas, and midstream companies. But certain issuers do not fall neatly into a single methodology, so Moody's sometimes applies two or more methodologies to examine its credit quality, the report says.
In other cases, an issuer may fall outside the scope of existing methodologies, requiring a hybrid rating approach. Such hybrid entities could exist in a developing sector, such as liquefied natural gas, or in developing markets where gas production or consumption is being promoted as part of national energy policies.