(Bloomberg) -- Demand for natural gas in Western Europe is set to decline sharply after 2030, posing a risk to the credit ratings of some grid operators, according to a report from S&P Global Ratings.
The expected drop “heightens business risk and makes leverage reduction increasingly important for maintaining creditworthiness,” it said. “As regulatory periods end, operators could face higher regulatory reset risk, depending on the pace of the energy transition.”
Western Europe has relied heavily on gas as a bridge fuel as it moves away from fossil fuels and builds out renewables, particularly in the wake of its energy crisis in recent years. The S&P study examines regulated gas networks in eight countries where the firm has ratings on transmission and distribution networks.
Over the next three-to-five years, resilient residential demand and a partial recovery in industrial consumption mean “strong and predictable cash flows” supporting credit quality of network operators, analysts including Claire Mauduit-Le Clercq, said in the report.
But this will become more challenging as the energy transition gathers momentum, meaning it will be “critical to have prioritized leverage reduction over shareholder distributions ahead of 2030,” they said.
The expansion of green gases could reduce the risk of stranded assets for gas networks, although this remains highly dependent on the pace of the transition and investments in infrastructure.
“Specifically for green hydrogen, except for Germany, frameworks to manage risks related investments have not emerged, adding business risks for grids,” the analysts said.
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