As the energy industry faces continuing low commodity prices combined with tightening banking and equity markets, management is looking to other strategies to sustain continued growth. Jay Rose, managing director of newly launched Euler Hermes Energy, told Midstream Business that credit insurance can protect that growth.

Credit “frees up liquidity for shippers, marketing companies, commodity traders, companies servicing producers, in a credit-constrained business,” he said.

“The more credit that you can deal openly increases opportunity to reach a broader open market, reducing barriers and creating opportunity to get more financing liquidity to facilitate growth.”

Though companies are getting creative, particularly while prices remain low, Rose said the need for more credit protection results not only from the stressed prices, but from the shift toward increasing globalization.

“The energy industry is becoming a lot more global than it ever has been,” he said.

“The forward-looking future of this industry is becoming global. LNG’s hitting the water, more foreign investment is coming into the U.S., you have deregulation of Mexico and the increased possibility of crude being exported legally. New counterparties and destinations for products are emerging, which is changing the dynamic of the industry as a whole.”

In the meantime, concerns about low prices are at the forefront of the list of business concerns. Those concerns are bringing the industry’s attention to credit insurance and risk management offerings like those from Euler Hermes Energy, Rose said.

“It’s an insurance policy on the credit risk protecting against counterparty defaults; we step in and pay the client in similar fashion to a letter of credit without tying up capital assets.”

Open credit is a valuable financial option for midstream operators, Rose said, because “midstream companies are very credit-constrained, and our programs open up the credit universe to more opportunity with private and non-investment grade shippers on pipeline.”

Usual credit requirements in the midstream “create barriers of trade and financing that prohibit growth,” he said. “By being able to facilitate liquidity in the form of open credit, it lifts barriers. The more shippers pipelines have the higher their subscription, which will lead to more demand, safer investment and, ultimately, more assets and equity growth.”

Companies not utilizing these options to mitigate risk could be missing key opportunities to grow their business, Rose said.

“Credit provides opportunity to businesses, and more tools and more solutions that businesses can use to help grow their business,” he said.

“In today’s environment, you have volatile prices, collapsing balance sheets, nervous shareholders, higher regulation with banks, yet executives are still tasked to grow their business.”

Taking steps to protect yourself from default on the part of your customers “is a way to help businesses grow while also mitigating significant amounts of risk currently on the balance sheets,” he added.