While Enbridge Inc.’s (TSX:ENB) business is increasingly dominated by liquids pipelines, the company plans to increase its focus on natural gas as it re-balances its business mix over time, Enbridge’s chief executive said September 1.
“We believe in natural gas, given the abundance and low cost obviously but also because of its responsiveness to demand, not just in terms of the use for power generation but through the drill bit in responding to demand … and lower relative emissions,” Al Monaco, president and CEO, told analysts attending the company’s annual investor day.
From no position in 2000, Enbridge has established a good gas pipeline business and has made strides recently with its entry into the Canadian midstream, he said. “But we need to strengthen the strategic position in establishing a stronger platform for growth here.”
Through to 2018, liquids pipelines will account for about 75% of earnings compared with about 40% a number of years ago when the gas business was larger, said Monaco.
However, as part of its vision for the company, “we will strive to be a bigger player in natural gas infrastructure, power and international — not immediately but certainly directionally over time,” he said.
“We are not wed to specific targets and we are not balancing for balancing’s sake,” Monaco emphasized. “We will maintain our discipline and invest in the projects that provide strong risk-adjusted returns at the end of the day.
Both Canada and the United States offer significant opportunities in natural gas and natural gas liquids infrastructure, said Greg Harper, who joined Enbridge earlier this year as president of gas pipelines and processing.
A 2014 study by the Interstate Natural Gas Association of America (INGA) estimated that between now and 2035 Canada would require more than $65 billion in capital spending in natural gas, NGL and NGL infrastructure, he said. In the U.S., consultant IHS in late 2013 estimated that an annual investment of between $80 billion and $100 billion would be needed in the same period.
For Enbridge, opportunities could include bolt-on projects from or within an existing footprint, new greenfield projects that link growing supplies with growing markets, and the ability to launch into new prolific basins on its own or in joint ventures or through strategic acquisitions, analysts were told.
Harper said he has made changes to his leadership team and added Brad Reese as vice-president of Canadian midstream and Dave Weathers as vice-president of business development for U.S. midstream. The move, said Harper, will expand Enbridge’s industry commercial expertise and capability to more aggressively advance business development initiatives on both sides of the border. “And these gentlemen are proven commodities.”
In Western Canada, Enbridge has been selected to conduct a FEED study and will be targeting producer customers interested in a large-scale ($400 million plus) gathering and processing facility in the liquids-rich Montney shale play, where Harper said economies of scale are needed in remote areas to generate competitive terms. The company also is leveraging its major projects capabilities in developing new modular processing train concepts in order to reduce the cost of capital as well as construction timelines on these projects, said Harper.
It also has secured an additional interest in the Pipestone Sexsmith assets in the Peace River Arch in northwestern Alberta and the Cabin phase 1 and 2 facility in the Horn River Basin in British Columbia. However, it will take LNG exports to drive production in the Horn River, Harper suggested. “I think LNG exports are critical to Canada and the ability to develop its resource.”
Harper said Enbridge’s intention is to extend the reach and current capacity utilization of its Pipestone/Sexsmith system and it looks to extend the scope and capabilities of the overall Canadian midstream business by developing new logistics projects to provide market access for the growing NGL production.
The Alliance pipeline, in which Enbridge has a 50% interest, and the Aux Sable fractionator (43% interest) in the Chicago area are well positioned to capture western Canadian and Bakken rich gas supply growth, he said. Aux Sable is enticing producers with rich gas premium contracts that enable them to avoid the high capital cost of deep cut extraction facilities as well as obtaining access to premium U.S. NGL markets, especially on the Gulf Coast.
Alliance has filed a regulatory application for new services beginning December 1, 2015, when the original 15-year contracts are set to expire and expects a decision from the National Energy Board early in 2015, said Harper. Recontracting efforts are well underway for contracts post-2015 and are proceeding favourably, he said.
The rich gas contract targets are ahead of schedule and Alliance likely will be looking at additional fractionation capacity beyond the current 107,000 bbls per day to handle the growing NGL content of the Alliance stream, analysts heard. Harper said he anticipates a decision on the Aux Sable expansion by the middle of next year.
The Bakken is another area in which Enbridge is interested, he said. “I think there are still substantial assets in the Bakken that are producer-managed that probably as producers go further in their development they probably want to put more of their capital towards the drill bit as they get to that proven-out phase.”
LNG development
As for LNG, for Monaco “it’s all about the competitiveness of LNG on the West Coast.” One element of that is the fiscal regime, which the B.C. government is expected to unveil in the next month.
The Enbridge CEO is hopeful that western Canadian provinces — in this case B.C. — look at the whole picture in order to be competitive. “There is a heck of a lot of drilling that has to take place in order to prove up the reserves that will support LNG and the proponents’ ability to finance those $20- or $25-billion projects,” Monaco said. “Hopefully, there is a bigger-picture economic approach being taken into what the true economic outcome is and value is to the province.”
Timing is another issue. As Western Canada is behind the Gulf Coast in terms of LNG export ability, there is a need for the government to manage the fiscal issues and ensure competitiveness so the industry can capitalize on the market window, he said.
Harper also suggested there is a need for more joint ventures between the various companies proposing to develop LNG projects on the West Coast. “Everybody can see … that five or six LNG facilities along the West Coast aren’t going to get built,” he said. “I think some consolidation of projects would make a lot of sense.”
