Keystone snub adds to gloomy prospects for pipeline companies

HOUSTON, Nov 6 (Reuters) - North American pipeline companies
are at a crossroads. Once the darlings of investors, their
growth prospects have been undercut by a 50 percent slide in oil
prices and tough environmental reviews that have delayed
projects.
President Obama's rejection on Friday of TransCanada Corp 's
TRP.TO proposed Keystone XL oil pipeline, while expected by
many, highlighted difficulties that have been nagging the sector
for months.
"It's not good news for the midstream sector," said Skip
York, an oil analyst at Wood Mackenzie.
Pipeline companies have been especially popular with
investors in recent years for their ability to consistently pay
out and grow large dividends.
But their attractiveness has faded since at least this
summer as executives at some of the biggest pipeline companies,
including Plains All American LP PAA.N and Kinder Morgan Inc (N:KMI), have warned of slower or variable dividend growth.
The main reason is that oil producers are cutting back
investments, so there may be less additional new volumes of
crude for the pipeline companies to carry and charge fees on in
the future. This is already hurting demand to build new
pipelines.
"In an environment where commodity prices are low ... it's
more challenging and more expensive to raise capital. That all
makes it harder to grow," said Jeff Birnbaum of Wunderlich
Securities in New York.
While revenues from existing pipeline flows are seen as
safe, the cloudy outlook for new revenue has prompted investors
to dump shares of midstream companies.
The Alerian MLP index .AMZ , the benchmark for the sector,
has fallen 32 percent over the last year.
Greg Reid, president of investment firm Salient's MLP
Complex, which has big pipeline holdings, has called for
consolidation in a crowded playing field as a way for companies
to bolster balance sheets during the worst downturn in years.
Some CEOs have spoken about what they call overcapacity in
some oil fields such as the Permian Basin of West Texas.
On Thursday, two companies delayed or slowed pipeline
projects. Sunoco Logistics, a unit of U.S. pipeline
giant Energy Transfer, said the company was
slowing development plans for an expansion project in West
Texas, while Blueknight Energy Partners LP delayed
building one in East Texas.
Their moves reinforced a sentiment voiced by other midstream
operators.
In August, Magellan Midstream Partners MMP.N , which runs
two major Texas and Colorado oil pipelines in joint ventures
with Plains, said it would be "hard-pressed" to see additional
long-haul crude lines needed in the region.
On Wednesday, Plains chief Greg Armstrong told investors
things were shaping up to be "more challenging ... than we
expected."
Winning environmental approvals for new pipelines is
notoriously difficult.
A day before Obama rejected its Keystone XL line,
TransCanada said it was scaling back plans for its Energy East
project, which would carry crude from Alberta to Canada's east
coast and is opposed by environmental groups.
Its rival, Enbridge Inc ENB.TO , saw its Northern Gateway
in British Columbia stymied by green and First Nations groups.
Alan Armstrong, chief executive of U.S. pipeline company
Williams Partners LP, has mused that his company had to deal
with several dozen agencies and local governments to build a
pipeline in the Northeastern United States, but just one
regulator to produce oil in U.S. waters.