Q2 2021 Enbridge Inc Earnings Call
Pardon me.
[music].
Welcome to the Enbridge incorporated second quarter 2021 financial results Conference call. My name is frenzy and I will be your operator for today's call. At this time all participants are in a listen only mode. Following the presentation, we will conduct a question and answer.
And the investment.
During the question and answer session. If you have a question. Please press star 1 on the attach going forward. Please note that this conference is being recorded I will now through the fall over at the Jonathan Morgan Vice President Investor Relations, Jonathan you may begin.
Session.
Thank you good morning, and welcome to our Enbridge, Inc. Second quarter 2021 earnings call. Joining me. This morning are al Monaco, President and Chief Executive Officer, Colin blending Executive Vice President and Chief Financial Officer, Vern Yu Executive Vice President of liquids pipeline Bill.
Bill.
<unk> executive Vice President gas transmission, and midstream Cynthia Hansen Executive Vice President of cash distribution and storage and Matthew Ackman Senior Vice President strategy and power.
As per usual this call will be webcast and I encourage those listening on the phone to follow along with the supporting slides a replay of the call will be available today.
And the transcript will be posted to the website shortly after.
We'll try to keep the call it the roughly an hour and in order to answer as many questions as possible will be limited to 1 plus the single follow up as necessary.
We will be prioritizing calls from the investment community. So if you are a member of the media. Please direct your questions to our communications.
The team who will be happy to respond.
As always our Investor relations team will be available for any detailed follow ups after the call.
Onto slide 2 where I'll remind you that we'll be referring to forward looking information on today's presentation and Q&A by its nature of this information contains forecasts assumptions and expectations.
About future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in our public disclosure filings, we'll also be referring to non-GAAP measures summarized below.
With that I'll turn it over to Al Monaco.
Okay. Thanks, Jonathan good morning, everybody.
Well first just to kick it off.
As you see on this cover slide here it really illustrates 1 of the key points will be speaking to today, which is the strong recovery that's underway right now.
I'm going to start with the mid year recap followed by an update on the fundamentals and how our business is nicely positioned for the energy transition.
Collin will take you through the numbers.
And this time around our progress on sustainability.
This next slide is our 2021 priorities dashboard.
Our core businesses performed very well high utilization across liquids gas transmission and the gas utility.
That drove strong first and now second quarter.
The numbers, so were confirming full year EBITDA and DCF guidance as you saw in our release.
The $17 billion capital program is on track with $10 billion scheduled for the in service this year and that will drive our 3 year, 5% to 7% DCF per share CAGR outlook.
Our balance sheet is in great shape.
In fact, moodys upgraded us to <unk> 1 so we're now at that level across our 4 agencies.
And the sale of our minority stake in the vehicle provides more buffer and releases great value for of non strategic asset.
While upstream investment remains discipline, we're seeing a pickup in commercial.
The activity around the U S Gulf Coast in particular system modernization and low carbon opportunities.
And we continue to bolster our industry, leading ESG position MSCI reaffirmed our a rating so we're pleased with that.
So the messages that we're on track to deliver on the 2021.
Priorities, we laid out at Enbridge day last November.
Moving to slide 5 the economic recovery is gaining momentum.
Mobile fuel demand has rebounded, but not fully back to pre pandemic levels.
Transport sectors came back with gasoline diesel and jet fuel all up.
Pet Chem demand was less.
Less affected by the pandemic. So the jump is not as pronounced here, but still up 3%.
We've seen the return of global LNG demand and with that strong pricing.
We're still taking a cautious approach to the rebound, but its pretty clear the recovery will drive crude and natural gas demand led by developing.
<unk> countries.
And as you've heard of say before we're big believers that natural gas will be essentially no matter, what the pace of the energy transition.
Aside from the many benefits of gas. The fact is that it is also crucial in supporting renewables growth and reducing global emissions.
And that's playing up more and more when you look at how gas is being built into long term energy resource management planning.
That's playing out in real time in Ontario, with our announced new community expansions for gas in other regions looking to displace coal fired generation.
So the picture highlights.
The strong runway for conventional energy growth over the next decade.
But as we've been saying.
Evolving our business to align with the changing energy fundamentals, so here's what that looks like for us.
Any way you look at it we're going to play a big role in.
Future.
That's simply because of our businesses have both conventional and low carbon growth opportunities. In this chart illustrates how we think about this duality.
Demand for capacity on natural gas and crude systems means more modernization and expansion of investments toward export infrastructure.
In particular.
That's because over 80% of conventional demand comes from petrochemicals industrial power and heavy duty of transportation, which continues to grow globally with limited alternatives at this time.
In addition, we expect our low carbon growth opportunities to.
The energy of op.
We've got our competitive renewables business with a growing European offshore portfolio and that capability has allowed us to accelerate our solar cell power strategy and lowering emissions.
RMG hydrogen and Ccs will take time to be a bigger part of the energy mix, but we're investing.
<unk> and these opportunities today across our businesses.
In liquids, we are well positioned to support our customers' emissions goals through Cc U S I'm going to come back to this 1 in a few minutes.
The same holds true for gas businesses, where we have access to saline aquifers direct connections to customers.
And the utility platform, we're investing in hydrogen and R&D today.
Importantly, these low carbon investments will ensure continued utilization of our assets for a long time, while lowering the emissions intensity.
So that's how we are positioned early for the transition.
Onto slide.
Slide 7 in the near term are 5% to 7% DCF per share growth through 2023 will be driven by what you see here.
1 of 2% from embedded revenue escalators and of course that provides good inflation protection low capital intensity optimizations and productivity.
Events, while the rest is driven by secured projects in execution right now.
We've also laid out our post 2023 growth drivers and our capital allocation options.
Now Colin is going to go through the framework and priorities, but in summary, we have an attractive organic opportunities.
Opportunity set, but we'll be very disciplined and not chase growth, where the returns are commercial underpinnings don't fit the value proposition you're used to seeing from us.
So we will evaluate those organic opportunities against other options like share buybacks.
Let's shift now to the business update.
The starting with liquids.
We just completed a 160000 barrel per day expansion of the woodland system to keep up with current production and those volumes of course support downstream throughput on the main level.
It is a good example of the low cost opportunities we have in liquids.
Now in Q2 customers took advantage of the shoulder season for refinery and upgrade of turnarounds, resulting in lighter throughput as we forecasted.
Volumes are picking up again trending towards our full year forecast of about $2.8 million barrels per day, and we've laid out this trajectory in the chart.
Our mainline contracting the hearing wrapped up last week as you heard shippers.
Shipper support continues to be strong and noteworthy that some dissenters, even while disputing the negotiated toll are supportive of contract.
Onto the line 3 we received a positive decision from the Minnesota.
Court of Appeals, which reaffirmed the PUC permits.
The construction wise, we're tracking the schedule, we're about 80% through mainline construction slightly higher on stations. So we're moving along well and continue to work on water crossings.
All of that to say we are on track for a Q4 in service.
And once we get there line 3 will contribute nicely to cash flow growth.
We're all focused on construction progress of course, but a couple of things to point out here first.
The project enhances the safety and reliability of our system. That's good for US it's good for customers, but it's also positive for the rest of our stakeholders.
And second there's great support from local communities and tribes that continues and we've invested locally to ensure they benefit from this project.
We're very proud of the 250 million plus in spend with tribal businesses their workers and communities.
Lastly on the.
Illiquid business, how we're thinking about carbon capture using western Canada as the reference point, given the opportunity to make a big impact on emissions. So thats on the next slide.
First of all there's no doubt that <unk> will be critical to meeting societies net zero of targets I think little by little of that.
<unk>.
As agreed upon by just about everyone and it's essential.
Canada's emissions goals in particular, and the U S as well and it was good to see some of the new infrastructure details come out also being supportive there.
The share investment needed is going to be mass with current technology.
It takes roughly $1 billion of capital to reduce our mega ton of steel.
We're excited about this opportunity and our strategy is driven by the fundamentals.
And while the technology really isn't that knew we need clarity on policy to scale up and attract capital.
So as you know.
Non of addressed the 45 to provides a good foundation, that's starting to make things happen in the evening faster pace.
And Canada incentives are on the way as well and we're at the table to help shape that outcome.
But important to recognize that of meters and our customers will be driving the timing.
We're in discussions.
And the use of industries to explore how we can support them.
Our strategy focuses on the full value chain from capture through the storage, which aligns well with our assets and we believe of utility like commercial model will be most cost effective.
These are complex projects.
So our scale customer relationships in all of our businesses execution capability and ESG focus make us a natural partner.
And it will be important to work with technology and industry partners as well.
As an example, we've just entered into a partnership with Savant day.
Which has developed.
<unk> innovative carbon capture technology.
We like this because it can be used for a range of industrial applications at much lower capital cost and that of course has attracted a lot of attention from the upstream community.
We're going to keep you posted on how we're progressing on the strategy.
Moving to the next slide.
Best of transmission, where we are slated to bring in 3 billion plus of projects into service this year.
Construction on T cells, and spruce region, BC is progressing well and we've put the initial phases in service in Q2.
T cells 2 of the 2 of the 5 stations and the initial segment of spruce.
Rich our operating.
Both of these projects are cost of service commercial underpinning, which ensures a solid return on 1.5 billion of capital.
Great progress on our U S Gulf Coast LNG strategy with construction of the Cameron extension project, which will supply of about 800.
Slide and can of day, 2 the Calcasieu pass liquefaction plant.
And there we're on track for Q4 in service and that's a $200 million project as a reminder.
And these projects fit right in the middle of our low risk fairway.
The same is true for our monitors in the modernization program.
Graham and that's on slide 12.
The criticality of as I mentioned of natural gas to the future energy mix is going to drive investments for many years to come.
Part of that will be compression, which also helps to reduce emissions and as it says here, it's about the 25% per compressor reduction in emissions.
As we move along and we're working with industry partners now on how we can add carbon capture.
We think modernization capital will be roughly half of $1 billion to $1 billion annually.
Which will earn a solid return and related to that we'll be initiating of section 4 rate filing on Texas.
This eastern shortly.
We've also received FERC approval on our alliance and <unk> settlements and we should hear back on East, Tennessee. Soon so things are moving along on the regulatory front well on gas.
Development activity as I mentioned early is also picking up and our new original.
<unk> project is a good example.
We're pleased to be working with the Tennessee Valley Authority, that's TVA on an opportunity that could provide a formidable cleaner energy to the utilities customers.
Ridge line would expand our east, Tennessee system, which would be about $1 billion, assuming the combined.
Cycle option of selected through the <unk> review process.
It's a great example of how natural gas can preserve reliable and affordable energy, while lowering emissions by replacing coal fired generation.
Pending Tvs environmental assessment and supply source of termination project approval.
And the necessary permits were projected to be complete by 2026 and that will support our medium term outlook.
Onto the next slide in gas distribution.
The utility just continues to grow and deliver solid results. We are on track to add another 45000 customers. This year.
And we're very excited to be moving forward with our community expansion program comprised of 27, new connection connections, including remote indigenous communities.
Along with system modernization and reinforcement projects, we see investing 1 to 1.5 billion annually in this business.
And our incentive regulatory framework, while generating a good return also ensures that the investments get captured in rate base.
And evolving and substantial long term opportunity is lower carbon emission solutions.
On to slide 15, our utility has been a fantastic.
Way to develop innovative lower carbon RMG and hydrogen that will green the gas grid by leveraging our assets.
On R&D, our Dufferin project went into service. This month that makes 3 projects in operation. There is another 3 in construction with 10 to 15 in the Hopper.
Past, including through our partnership with Comscore in Walker industries.
Perhaps a larger opportunity is leveraging our assets for hydrogen.
Our initial pilots are proving out the technology and scaling hydrogen across the system.
At our Markham, Ontario facility, we validated the green.
In card of gas phase. So that's good to see and we're now constructing phase II to inject hydrogen into a closed loop system and the utility.
The blending.
Facility is about 3 quarters done and on track to be in service. Later this year. So we're looking forward to that.
In Quebec, we are planning to blend.
Green, 5% into our gas a fair utility and that project is currently in design and engineering.
So you can see we've got a great utility platform to develop low carbon opportunities within our low risk business model.
Now on to slide 16, and our renewables business.
The first good.
Of distress on the 3 French offshore wind projects.
On the Saint Nazaire 13 of the 80 foundations are done and turbines are being manufactured for fee comp and collaterals.
These 3 projects are scheduled for in service in late 'twenty 2 through to 2020 for the first being Saint Nazaire.
So solid cash flow growth to come over this period.
Our Maple power development team continues to build the pipeline.
We've got 2 projects with potential for over 600 megawatts in France that have secured leases.
Dunkirk nearshore and prolonged current large which is a floater.
Pilot, obviously further offshore.
And we're starting community consultations on the Rampion extension project in the U K and that's up to a 1.2 gigawatt project.
So you can see here Theres a lot going on in this business, but in the bigger picture the frothiness, we're seeing renewable space.
<unk> and our assets more valuable.
And we've got an inventory of projects, we started developing a while ago.
Before things got overheated, so we can grow without getting involved in highly competitive situations.
Onto slide 17, and an update on solar cell powers theres lots happening here as well.
As we now have 3 projects in service 2 on our gas system and 1 of the liquids.
We sanctioned and other for liquid stations recently, which flat 40 megawatts. So at the beginning to be a meaningful part of our renewable strategy.
What's exciting is the broader opportunity across our LP in GTS businesses.
And you can see the dots here show the location of pump stations on the liquid system and compression on natural gas we.
We see the potential to deploy up to half of $1 billion over the next few years with more after that.
Of course, these investments will need to clear our hurdle rates and.
Businesses of reduce scope 2 emissions.
You can see here on the chart.
The opportunity for emissions reductions over the years.
So with that I'm going to turn it over to Colin.
Alright, Thanks, Alan and good morning, everyone I'll start with a quick overview of our $17 billion capital program as you know it's a.
They also growth driver for us, but not our only 1.
We're making great progress on our program across the footprint and we're on track as Al said to deliver $10 billion of projects into service this year.
This well diversified growth portfolio.
Should generate a significant step up in cash flows.
Really a conveyor belt, if you like of additional cash flows from many years.
And in turn considerable financial flexibility and investment capacity, which is clear on slide 19.
In addition to our secured.
Growth execution, we've actively recycled capital.
At attractive valuations over the last few years.
High grading the portfolio and further strengthening our financial position, our recently announced sale of our interest in <unk> at 2009 times earnings multiple is a great example of this when that transaction closes we will have completed over $9 billion of asset sales since 2018, all while.
While growing total cash flows and as you know deleveraging while growing is not exactly an easy feat.
Today, our balance sheet is right, where we want it to be and across the board our agencies recognize the strength.
Currently even now prior to.
Executing on our 21 capital program we've been.
The Triple B, plus rated with with 3 agencies for a while now and the upgrade from Moody's last month makes 4 for 4.
And as I mentioned, our execution will lead to even stronger metrics in 2022 towards the bottom of our target range or even below.
Our preference even will be to live near the.
Of that target range to preserve maximum optionality.
On to slide 20, and a quick overview of our capital allocation priorities.
We've said this before but it bears re emphasizing because it illustrates capital discipline.
Our priorities are unchanged.
<unk> strength.
Lower end sponsel dividend growth and $3 billion to $4 billion per year of ratable utility like in corridor of reinvestment represent our core game plan if you like.
That will leave us with about $2 billion of additional annual capacity, which will deploy against the next best alternatives.
So as al alluded to a couple of times.
So growth will need to compete with share buybacks, which remain attractive also.
Now I'll walk through our quarterly financial results on slide 21.
Adjusted EBITDA was $3.3 billion, while DCF was $1.24 per share and earnings were <unk> 67.
Conventioner.
I wont review all of the details that are in our news release and 10-Q, but if I step back there are a few key observations first each of our platforms is humming along nicely Q2 last year was of course, the trough of energy demand and it's clear that the economic recovery is now in full swing.
Second foreign.
Per share of fee translation of continues to provide provide a slight headwind.
As you know our assets are geographically diversified with about 2 thirds of our businesses, earning U S dollar denominated income, which we substantially hedged.
The translation of our U S operating results in each segment were negatively.
Aaron current acted by the weaker U S dollar.
Which was partially offset by our hedging gains reported below in eliminations and other segment.
Third energy services continues to be challenged by Underutilization of some of our fixed contract commitments.
Due to.
A confluence of unusual market conditions, including a week basis.
Limited blending opportunities and market backwardation structurally so little value in storage these days.
In contrast, you'll recall last year, we benefited from significant contango conditions.
<unk> storage of gains due to the pandemic.
As a reminder.
These relate to unused demand charges, they are not speculative trading losses.
Finally in DCF, we're benefiting from favorable interest rates and translation of U S interest expense.
And we're expecting cash tax savings stemming from increased utilization of existing tax pools to offset proportionately larger U S dollar taxable income.
So overall other good quarter in the book So let's move now to the outlook for the second half of the year on slide 22.
Starting with EBIT.
EBITDA operating performance.
For the first half of the year was a little better than plan, but that's been partially offset by weaker U S. Dollar as I mentioned and negative contribution spin energy services also.
Overall, we expect first half trends to continue through the second half of the year.
Including including strong utilization of our systems. So we're confident that we'll perform within our guidance range for EBITDA.
A few more comments on EBITDA.
As I mentioned, our U S dollar exposure of substantially hedged, which materially protects us from a weaker dollar.
Secondly, a comment on inflation.
<unk>.
Potentially trending up but we're again, we're well protected here.
With about 80% of our revenues, having either built in in flavors contractually or periodic regulatory protections through rate proceedings.
From a quarterly EBITDA profiling perspective.
<unk> a reminder, that seasonally Q3 is our lowest quarterly contributor of course with lower heating days in the summer months affecting our utility lower wind resources in renewables and some seasonal effects in our liquids system, partly related to maintenance I should also mention that Texas Eastern service.
Is it fully resumed Ah now in sooner than expected previously.
Of course Q4.
Profile wise tends to be a larger contributor with winter heating season, driving good results in our gas businesses and line 3 is on track to be in service, which should contribute nicely to cash flows.
Original guidance.
Turning to DCF, our second half results will of course of line with EBITDA, but should also benefit from continued favorable interest expense.
Lower rates favorable USD translation and lower financing requirements.
Generally expected due.
Per our anticipated proceeds from the transaction.
Transaction close.
Finally at this point, we do expect that cash tax savings.
For the full year will be around $100 million relative to our original guidance for the year.
On to slide 23, with a quick word on sustainability.
Due to the <unk> of integrated sustainable practices into our business for a long time each of the E. S. Angie are absolutely essential.
How we have been running our business and engaging with our customers and communities in which we operate.
In June we issued our 20th annual sustainability report, which reflects this long standing commitment.
The report highlights our good progress towards our emission reduction targets.
We've reduced scope, 1 emissions by 32% and scope 2 emissions by 14% since 2018.
And we have line of sight to execution pathways needed to meet our 2030 intensity GUL and our 2015 net zero goal.
On the S community and stakeholder engagement is integral to both project execution and of course of operations thereafter.
A few numbers, we've spent over $1 billion with indigenous groups since 2017, including direct spend and sub contracting opportunities.
With indigenous businesses.
And in 2020 and the 1.
1 year, we contributed $3 billion of property taxes and income taxes to various levels of government.
Our continental Workforces diverse already and were striving to enhance all elements of diversity, including at the board level to achieve our 2025 target.
On the G.
It's highly engaged with the diversity of backgrounds experience and thought and importantly, our.
Our ESG priorities are tied to enterprise wide management compensation, ensuring alignment to our performance.
Our objective is to be a leader and the ESG rating agencies recognize this across the board.
We continue to innovate.
And in this regard and in this quarter that mindset is reflected in our issuance of our first sustainability linked bond of.
A few comments on it.
We're proud to be a leader in sustainability linked financing are published framework guides our thinking in this regard.
And in that framework, we've selected kpis that align with our goals.
Our board and we think are critical to our long term success of.
Of course, we followed up the framework with the $1 billion sustainability linked bond in June, which combined with our $1 billion credit facility also sustainability linked earlier this year that now ties already 2 billion in financings to our ESG performance.
We.
Think this capital formation trend will dovetail well with how we conduct business.
In particular, we see both pricing and Moreover, access benefits for sustainable financing.
For example of approximately 40% of our S. L B order book, where ESG type.
Mandate.
<unk> enters adding further demand to our already diverse investor following.
Before I turn things back to elder App up I'm excited to introduce and invite you to attend 2 events on September 28, we'll be hosting our inaugural ESG Forum in New York.
At that event Youll hear from a diverse group of our leaders.
About how we've embedded leading ESG practices within our business.
And we will continue to hold our annual Investor day on December 7th this year it will be in Toronto.
This is always a great opportunity for us to share our business and corporate plans and we look forward of connecting with many of you in person. It's a it's been a while.
The environment and back to your home.
Okay. Thanks, Colin just before we open it up just a few takeaways I think 2021 is it should be clear from that run through a pivotal year to delivering on the 3 year outlook that we outlined at Enbridge day last year, and we're progressing well the businesses are running at high.
Thank you Alicia and financial performance as you just heard is strong.
Execution of the program is tracking the plan with that $10 billion that Colin just referred to.
The pace of the economic recovery gives us confidence around demand for conventional energy over the medium term and importantly, our assets are essential.
Utilization of the energy transition.
As you heard we're making good progress on our low carbon investment strategy in a number of areas.
And finally, our leading position on ESG is getting stronger yet and good progress on our goals there.
So it will begin the Q&A session now the team is on the line here.
Ill hand off as required.
On specific issues.
Thank you we will now begin the question and answer session.
The question. Please press star 1 other thought shown phone if you wish to be removed from the queue the spread.
Why the harsh.
If you are using a speakerphone you may need the pizza.
Net.
Great before pressing the numbers once again you have a question. Please press star 1 on the attached that would've fallen.
Jerry meet the net of J P. Morgan from the line.
<unk>.
Yeah.
I just wanted to start off here on the R&D side really and just wanted to dive into the strategy of little bit I'm. Just wondering what the current C&I demand for RMG that you're seeing here is there any differentiation by sourcing carbon.
Carbon attribute just wondering if the commercial industrial customers.
Breast and RMG per the negative attributes.
Okay, Jeremy Hi.
Well I think maybe Cynthia will have her speak to this given she is moving that strategy long and has good <unk>.
Engagement with the customers there so and then of Bill has anything to add on the gas transmission front.
Thanks Al Yeah Jeremy.
Awesome really.
Strong interest from various commercial and industrial.
There is of course, the across Ontario, and parts of the Quebec, we have the.
The opportunity to deliver that and then.
Sure.
We've been able to facilitate the delivery of R&D across.
And North America, because of course, it train and of Fungible way. So we are seeing lots of strong interest.
There is a really great opportunity to continue to build on that as we have the.
Chips as Al mentioned with common core and Walker industries to really help build that out across Canada. So it's something that we're seeing some strong interest we'd been able to facilitate some of those transactions and we look forward to the opportunity to expand on that in the future.
Okay.
The partnerships all of the staff.
Yes, I'll just add a couple of things first of all of you know I think on the C&I side, Yes, we are seeing direct interest.
But in a lot of cases, Jeremy it's it's the local distribution companies like Cynthia's that are as you know.
The major customers that are looking to work with us to.
Bring RMG and from various sources and they're motivated.
Yeah.
The main trade Association a G E.
Even if it's just the residential months of getting away from C&I is saying hey, this could be of this could.
Part of our gas.
By the middle of the century so.
This isn't doesn't awful lot to do here between.
Cynthia has utility.
It's fairly substantial transmission system.
Got it so it sounds like it could be a supply diversification away from.
And B have LNG in the winter in the northeast.
[laughter] you'd have to get into the.
Fish.
The shift gears, a little bit here on carbon capture.
And just wanted to see how you guys think about the total addressable market here. It seems like there's been a lot of focus on the oil sands producers, but it also seems heavy.
Russia Theres no of the path to Decarbonize, Besides Tcs and just wondering you know.
How you think about that and the opportunity set both in Canada, and the U S as well.
Yeah, maybe I'll start it off and Vern can add Jeremy.
First of all you're absolutely right and the numbers.
<unk> total addressable market very I mean.
The bottom line is it's a big number it's likely in the order of 2 trillion dollars.
And I go back to my comments earlier on if you look at the.
Sources of emissions reductions opportunities I think everybody is familiar with with them but.
Energy efficiency.
Certainly renewables will be a big chunk.
A very significant and for certain chunk will be <unk>, we just don't see how.
How we meet the goals without <unk>. So the capital is going to be large.
And you know obviously.
The existing infrastructure players like ourselves are going to be involved in as I said earlier in the comments, we're thinking that the opportunity set for us really covers.
From the upstream capture part through of course, the transportation and ultimately sequestration.
And.
If you look at the assets for example, and in the utility good storage assets there that are applicable.
Bills gas transmission has got great storage, there and of course, if you look at the overall picture here in Canada and in the oil sands and the future of the oil sands, it's pretty obvious that cease use.
A big part of that so it's large as I said earlier it's.
Not immediate these things will take some time to work out, especially as the policy and incentive framework rolls out here over the next little while but no doubt big opportunity.
Byrne, Okay. Thanks, Jeremy.
The us will absolutely right the industrial opportunity is very substantial.
As you know cement plastics.
Power generation all kinds of other things are really critical to what we do as a society.
<unk> can make a meaningful difference in our emission reductions so I think the.
As part of stats out there that.
Global net zero goals of <unk>.
The us is anywhere between 9 and 30% of the total carbon abatement, we want to see by the middle.
<unk> century.
So we are actively talking with customers both in the oil sands as well as across heavy industry to see what we can do to help reduce submissions obviously in Canada, we need a little bit more clarity on the investment tax credit, but in the U S where all.
Middle of reactive so I think in our announcements today, we talked about an opportunity to work with the new technology player Savant, and we will be focused with them looking at industrial <unk> implementation across North America.
Got it that's very helpful. Thank you.
Okay. Thank you.
Your next question comes from the line of Robert 1 from RBC capital markets. Your line is now open.
Hey, good morning.
So the questions here, just on capital allocation and starting with asset monetization.
The strategy is.
So it away from as needed for funding to something more opportune net debt like you've done with <unk>. So I'm. Just wondering are there other material opportunity to do more of that we might see in the relatively near future and if so how do you think about the timing of that is it just selling it down when its opportunistic and deploy.
Really the capital later or is it going to be more about timing.
For when you've got deployment opportunities.
I think the main driver is the former.
And really it's driven by.
I guess, Robert the constant look at the portfolio and whether or not.
At the can.
Monetize assets.
Superior value as you've seen I mean.
I think the bigger picture, we're generally happy with our asset mix certainly of the commercial structure that underpins them. You know we have very little GMP exposure now.
We see ample converge.
Conventional runway.
In those businesses and as I just went through the business of support.
Our strategic actions to support the transition.
<unk>.
We look at every possible opportunity to release value I think we've proven that.
We.
We will take action and I think over the last 3 years, it's been about $9 billion of assets and with this latest 1 and <unk> as well so.
We'd certainly consider looking at other things if we received full of more than full value for them. So it's going to be opportunistic as Colin pointed.
Without the balance sheet is in very good shape, so it'll be selective.
Monetization too.
To generate value, where we can on them.
I guess of specific basis, when we see those opportunities.
Got that.
And then if I kind.
Continue on capital allocation.
You spent a lot of time today talking about a lot of the energy transition opportunities and it seems like that portfolio of opportunities is getting bigger and bigger.
So I guess first.
What approach do you take 2 ascribing value to some of the soft factor.
A round of being ESG friendly and I guess, specifically thinking about your willingness to accept single digit equity returns of some of the solar.
Self powering and then I guess the second part of it is as the pool of potential projects grow if.
If you exceed that 3 to 4 billion in capital thresholds.
Actor that you've set out.
Does that change how you approach capital allocation, where the sex of the pecking order.
Or your priorities of maintaining that leverage range and.
Your self funding constraints.
Okay, well Colin go ahead, Hey, Robert Yes, Thanks for that question.
But you know we've got a a robust and mature investment framework that we've used.
He used with disciplined for many years here.
And.
You know we.
Well.
We don't generally except <unk>.
Single digit returns maybe.
Our except in the Cynthia's business, where it is the regulatory compact so.
Our return thresholds are generally higher than that.
And as we think about energy transition investments, we think about it generally in the same.
Lens, we're an infrastructure company.
We want to.
Secure return of and on our capital.
And we're.
We're not we're not.
Not thinking about energy transition investments really in R&D.
Bleeding edge kind of way, so we're going to be pretty disciplined.
As we mentioned there is room for energy transition.
Capital investment in our financial capacity outlook within that 5 to 6 billion per year, we've got.
Excellent line of sight, the 3 to 4 and everything else will kind of compete against each other.
<unk>.
<unk> energy transition however.
There is.
And then just around this that maybe this is where your question was going we do consider.
<unk> and have for a couple of years in our AR and our framework.
To either reward or penalize the different.
Different investments around our hurdle rates.
So that's how we're thinking about it it's probably more of the same.
Robert.
It's all I think maybe just to round that out the.
The way, we're thinking about the transition at 50000 feet, it's really a parallel effort with.
The core conventional growth that we have so if you look at what Colin said about the capital.
<unk> that we have.
It's pretty clear that at least $3 billion to $4 billion.
The 5 to 6 in total capacity, let's call that core conventional.
Business.
And with that the returns that youre used to seeing from us so that extra $2 billion in capacity.
Really is projects will have to compete straight up whether it's matthews renewables business or whether it's solar self power or other other types of investments including more.
Organic growth.
And.
If you look at how we've prosecuted RMG in hydrogen and Cynthia's business.
It's basically.
At the same type of returns that we've seen so Collins point about being disciplined and I think is the key here.
And although it's important to carve out some capable.
Ability for the transition.
We don't expect to take.
The significant reduction in return.
Okay.
And that's great. Thank you very much.
Okay. Thank you.
Your next question comes from the line of Shneur <unk> from UBS. Your line is now open.
Open.
Good morning.
Hi.
Wondering if the if we can start off or can I guess can really continue the discussion of all the Ccs side, it's been topical today.
You announced the Mou today the.
That you have in place.
I was wondering if we can sort of talk about the technical aspects you made a comment.
In your prepared remarks, I think it was a $1 billion of capital equals I think it was 1 mega accounts for example.
I was wondering about how we can if you can sort of talk about utilizing your existing pipeline systems from moving carbon.
What are the technical aspects that we need to think about can they handle the higher.
Do you need thicker more pipeline walls.
2 new systems really have to be built or can some of the more recently late pipe actually handle I'm just kind of wondering if you can sort of talk us through the technical aspects that we should be thinking about.
Okay. Thanks.
Those are great questions.
I think from a technical perspective.
Our view is that new pipelines or better than existing pipelines to manage carbon C. O 2 precisely they need to operate at significantly higher pressures too.
To deal with the liquefied cotwo so.
Pressure I think what we've been most focused on is that when you go ahead and execute this kind of infrastructure, you're most mindful of trying to minimize the overall costs. So.
While there is going to be a need for hubs.
Throughout North America.
So the shortest pipelines you can build build to those hubs will be the most cost of advantageous so from our perspective, it's really looking at the individual customers need.
The emitter and trying to figure out what is the cheapest and most reliable system to set up for them and I think in most circumstances.
From Stan says that.
Involve building new pipelines that have a very short distance to the sequestration hub.
That makes perfect sense and then.
Maybe to continue on here.
I really enjoyed the slide talking about you connect the flexibility.
Erica.
2 thirds of of the 46 billion of doing a high priority and vessels and so forth. So you kind of have this this $2 billion flags.
When I look at your $17 billion of secured backlog.
Just trying to understand how that number is going to grow over time and context of the discussion that's been going on today.
The ability how much capital are you looking at or how many projects in terms of dollars of you're looking at that.
That could move into the secured backlog that would be.
<unk> by most investors as energy transition related capital is.
Is it something where the backlog can grow by $5 billion over the next 3 years to 5 years or is it something.
That where it grows by 10% to $20 billion.
Okay, well, let me, let me start off the call and can add.
I think we've outlined.
Certainly the Enbridge day in other places if you look at the backlog.
In traditional terms the way we've added.
Out of it all up there is somewhere in the order of $30 billion in that now we've obviously emphasize that not not as much because we're continuing to focus on the efficiency of capital and minimizing large scale investments, but it's around $30 billion.
2 years, and so that translates to roughly $5 billion to $6 billion a year of Shneur and so if you you kind of back into each of the businesses.
Looking at liquids, roughly 1 billion or 2 a year in terms of.
Optimizations expansions and extensions and what burns looking at.
Over the next I think GPM is probably in the 2 billion category.
Bill's modernizations.
Expansions, we've got a lot of LNG to look at.
In the utility I mentioned, it's probably 1 billion billion of half again reinforcements customer adds.
The new community expense.
Since that we're talking about and then I think in in.
And Matthews business and renewables.
Somewhere in the order of 1 billion of years. So my point is.
It doesn't take too much to fill up the $5 to 6 billion of year of capacity with our what looks to be our Oregon.
<unk> backlog, but again.
I think the 3 to 4 billion, we've identified we think thats locked.
And then the other 2 were going to be.
Very discriminating, let's put it that way so I think there's a good backlog there we're just going to be careful in how we.
Deploy it.
Organic to outcome.
Well maybe just.
Reminder, that an extreme you're asking about energy transition oriented capital I'm not exactly sure what you've got in that bucket, everybody is defining that a bit differently, but.
I think we would argue of lot of our.
Our core businesses will contribute.
And the synergy transition so I think al's answer captures that globally.
Within a more refined.
The finishing of energy transition I think.
Al mentioned, there's not an immediate.
Scalable investment opportunity in some of these areas.
Other than the renewables, which.
The 2 Henrik Matthew is pretty excited about and we can allocate 1 of $2 billion of year.
In that business.
In the immediate term I don't if that helps round that out shneur.
No it perfectly does.
Appreciate the color of today and I Hope you guys enjoy your weekend.
Thank you.
Your next question comes from the line of Rob Hope from Scotiabank. Your line is now open.
Good morning, everyone.
Question is on the gas modernization capital of the kind of half of billions of $1 billion of year.
In your comments you did highlight.
Adding new compressors, we're updating the compressors can significantly.
Significantly reduce the.
Emissions. There I was just wondering is there some additional upside here.
Adding a TCE you asked of the compressors or even just going straight to electric drive plus adding in some additional of onsite solar.
Okay, just wanted to get the sense of how youre thinking about kind of upside flex to that modernization level.
Okay Bill go ahead.
Yeah, so kind of all of the above Rob.
For now the modernization that we've done to date of that we're currently doing is gas for gas. So it's the replacement of gas were.
Yeah, we're we're adding we're basically putting a new new equipment, that's far more efficient.
But the future.
Including things like the the the TVA projects that al mentioned.
Electric compression looks pretty good in most circumstances.
In those circumstances have to be that you've got really good reliable.
Power going to those units it could be to your point.
The opportunity to site gas or to look at our existing gas and put the cc U S. A new pipeline and carbon capture onsite or very close and.
I will say broad there of some places where are.
Our storage we've already proven out there it's good storage for.
For carbon so.
Pretty good opportunities in that like I said I'll just go back all of the above and with the focus on what's what's most economical on what reduces our our emissions footprint the best.
Okay.
And then maybe as a follow up to that.
If you are able to eke out some of the additional capacity it gets with the new compressors. There could you get customer support in terms of contract initially or do you think that would be largely be related to kind of the new rate cases of every so often.
Well anytime we add capacity.
City, we have to go to the FERC too.
To put it into service. So yes, I mean, there are some cases, where you add you put a new compressor in the just by its nature of its more efficient than the prior unit, though it has the same rate of horsepower, but in order to deliver more.
And gets certificated you have to go back to the FERC. If that's if that's helpful.
But it makes for a very economical expansion.
When it does happen.
Thank you.
Okay. Thanks, Rob.
Our next question comes from the line of Michael <unk> from Goldman Sachs. Your line is now open hey.
Guys. Thank you for taking my question real quick.
Quick on the liquid segment and I know this is the old economy stuff, but just curious I mean, you've always kind of outlined at investor day or analyst days.
Myriad out of potential growth projects. Once you got line 3 done just curious how you're thinking about some of those meaning I don't know the extra 100000 barrels at southern access or may be.
Flanagan south expansion of in some of the stuff.
Oh on the western part of the system as well.
Okay. Thanks.
Yes.
You're absolutely right.
Liquids mainline in the downstream pipelines have late in Q.
Capacity.
Available to them I think we're the best way to describe it right now is we're in active discussions with our customers post line 3 to see how and when we execute those.
Got it okay.
Do you see those as things that kind of happen not long after line 3 come online.
Or is this something that could take another few years and you'd need to see of ramp.
Their production out of out of Western Canada kind of Reaccelerate further than kind of what the producers are talking about now before those become economic.
Well they are low cost low permitting and fairly.
And the quick to market expansions.
And I do think as we see the economy recover and as producers get.
Confidence that the economy is humming again, we should see some good.
Progress on us.
Got it.
This would impact you guys the impact.
Fairly cold the takeaway options what are you all hearing about the timeline for Trans mountain expansion coming online and how do you think about the dynamics of a market. That's been short egress for for multiple years potentially becoming long pipeline takeaway once trans mountain and line 3 of both in service.
Impact.
I'm not going to comment on Trans mountain.
In service date, I think it's best for them to talk about that but we've been expecting trans mountain to come online.
And.
Provide egress for quite some time now so.
Our understanding of of the market here in western.
San Jose is there is a significant amount of heavy crude wanting to come to market from producers that hasnt just been started up yet that's in the range of $4 to 500000 barrels a day there are some.
Very close to completion brownfield projects with the producers.
Turn cash would come to market.
Quickly as well with it with sufficient egress. So once line 3 goes into service.
We will provide a little bit more egress Trans mountain will provide some more aggression that should fill up relatively quickly with all of the these projects there.
Or is that really just waiting for that egress to show up.
Got it.
The quick add on to that Michael.
If you look at the fundamentals here and we just saw this through 2020 the the.
<unk> for heavy are very attractive to the U S. Refiners, So I think given.
But in the fact that cash cost of it really come down.
In the oil sands in terms of break evens.
And they've done a good job in bringing down the full cycle cost. So I think there is a pretty good opportunity here for the oil sands to surprise again.
The forward given those factors.
That thank you guys much appreciate it.
Okay. Thanks, Mike.
Your next question comes from the line of Robert <unk> from CIBC World Markets. Your line is now open.
Thanks for taking my question and I apologize for the background noise, but I'll follow on to what you just talked about there.
There are.
There seems to be just the general.
Attitude of the producer community to conserve capital and they Havent ramped up.
Production quite as quickly.
And so I'm wondering.
How do you see that change of customer behavior of impacting U S. Gulf Coast strategy and also of the appetite for it.
<unk> contracted.
Well I think our U S Gulf Coast strategy remains unchanged and should we see strong demand.
For Terminalling options in the Houston area, whether that's for tankage or of VLCC ex.
And having that Optionality will always be important for our customers to maximize the netback on their barrels.
As we talk with producers, we see a very robust demand for capacity on our system and certainty for that.
Capacity so.
I think both dovetail into each other where a good set of our customers want to know what they have on our system that they can use it day in and day out then they can move their crude to the best markets and maximize the value of production and refining.
Ex pool, we feel very good about the U S Gulf Coast strategy, and I think with mainline contracting I think we've done a really good job at the C. R.
Providing evidence that.
Of the offering is good for industry as a whole that is supported by more than 75% of our current shippers.
So and we are very hopeful for a positive decision later this year.
Robert I think youre right about the.
Conservation of capital and I don't think Thats going to change anytime soon but if you. If you think about the fundamentals of of crude obviously light primarily in this case.
There is still pretty strong in terms of exports and we know that there is a runway for.
Crude demand going forward youre seeing that happened today, so the export.
The strategy that we have around the Gulf I think thats.
<unk> intact, including on the LNG front that the bill runs but.
But.
The key to all of this is and you are seeing more pressure on this keeping costs down. So we're focused on being as competitive as we can.
And really working supply chains and doing what we can to make sure that.
Tariffs and tools are our low enough to attract these customers.
Thank you that's a good answer but also of good segway to the other question I had probably more appropriate for Matt.
As you mentioned, we're seeing the.
Inflationary environment in terms of.
Capital spending.
And the.
<unk>.
It seems to be translating also into the offshore wind market.
I don't know if there's.
There's plenty of any improvement in the behavior of it.
The bid activity is becoming more rational of the offshore onshore.
Wind business.
Go ahead, Matt.
Sure Hey, Thanks, Rob.
Probably the answer industry wide.
No.
Not a lot of.
Not as much discipline as we'd like to see generally.
Of that market I don't think Thats, just relative to inflation, but just general.
Appetite for the asset class. So we're taking a really selective approach.
Roche to the business, we've got our existing pipeline of assets, which have largely fixed price contracts associated with construction.
We're locked in previously and we're on track and on budget on those construction projects, which is which is great.
Going forward.
Yes.
As you know, we're just going to be very disciplined, especially in terms of these.
The high price leases.
You know, we're going to we're going to go to places, where we don't we don't have to put up that kind of speculative dollar in quantity.
Because as you point out.
The discipline.
The plan hasn't.
Exactly been there across the board, but we're finding selective select opportunities, where we see good value still in that market and based on our partnerships and competitive advantages and capabilities.
Our pipeline continues to move forward on the development side.
Okay. That's great. Thank you.
Okay. Thanks, Rob.
Your next question comes from from the line of Ben.
<unk> from BMO. Your line is now open.
Hi, Thanks. Good morning also a question on the renewable power he had that east west tie line.
In 2022.
Could you comment on whether it's electric.
Electric transmission of that is that something you want the wanted to build on it expand book of new transmission opportunities.
Is that more on the noncore opportunistic bucket.
Matt do you want.
Talked to that are sure.
Hey, Thanks Ben.
I think it is opportunistic.
I think it's the latter category primarily.
You know of transmission is something that.
Is is still very challenging from a permitting standpoint.
Obviously.
It's it's if we need more transmission for renewable.
But it's easier easier sort of southern done. So are you know our focus is going to be primarily on the contracted renewable power project zone.
We don't have a lot of plans to invest in.
1 of the Resubmission of <unk> as far as east West tie the project has gone really well.
So about 1 we like a lot of it is the rate base regulated return type of structure, which we like and it's it's right on track and should be in service early next year. So you know at that time.
We'll see what we what we do with that but we like.
The asset a lot of it has got a good solid safe return.
Okay, Great and then moving to the the <unk>.
Canadian LNG export opportunity I haven't I haven't asked you guys. This for awhile Theres some news flow out there new partnership form the.
Could remind.
[noise] minus your position there.
The export and any sort of maybe more of how you're having conversations had recently.
Okay, well, it's bill do you want to take that 1.
Yeah sure you know there are obviously big opportunities and we'd like to see things get organized.
Sexually.
Yeah.
Quite exciting to see.
With the with the <unk>.
Announced recently and then having a project that sort of led by by first nations. So that's good and that fits well with US we we engage with the local community is pretty well and then with first nations.
I think our our west coast.
Gas connector project is actually pretty well situated for anything new that happens in western Canada.
So those are real big opportunities and then and you've got to approach those obviously, that's very cautiously but.
But but good opportunities and then.
I'll get in the continent of about the Gulf Coast.
The Gulf Coast is actually.
The seeing a bit of a restart of dense or at least the pick up from where they left off maybe a year and a half ago.
And you know.
Our efforts there though.
Theyre not as Grand.
They are very manageable and and there are a number of some of them. So.
The good opportunities in LNG for us the hope you didn't mind, if I, if I got that and then.
Just 1 other thing I'll add to the.
In the sea of course the.
The good news is we're well situated there on the.
On our west coast mainline and so whatever happens out there.
Into the future of aside from the connector itself that bill was talking about it it's going to be good for our existing business there.
Alright, that's very helpful. Thank you.
Okay. Thanks, Ben.
Your next question comes from the line of the Linda is the daily BDC Gary.
<unk> is now open.
Thank you.
From an operational perspective, recognizing that your energy services.
Dealing with the number of factors compounding.
The negative results I'm, just wondering if you could give us a sense of what sort of demand.
Daryl just we might expect prospectively or will they be Jimmy.
Diminishing over the next year or 2 and would you.
Just renew them opportunistically or can you comment on your strategy and energy services generally.
Hey, Linda calling yeah. Good question, so I think what you're seeing flow through.
The Charlie results right now is pretty.
Pretty much.
Our worst case scenario sort of any worse of assets should should get better as a conditions improve any 1 of those 3 strategies we typically.
See some value from <unk>.
Secondly, if not.
We do have.
You are correct that roll off in the ladder basis from taper down so.
I look forward to seeing this improve.
But no change to strategy.
No no. It's just it's a small business. It's a it's I think it's smaller than our peers marketing businesses.
Its typically back to back of tightly risk control that's worked well for us last year as you know is.
The huge year.
This year, not but it still fits and it's you know.
Typically generates you know.
Zero to 1% of our EBITDA, so its well contained.
Okay, Thank you and recognizing that.
Your line of pipeline is out of big part of your business, but maybe just a comment generally on re contracting in your natural gas pipeline, specifically alliance and how that might be influenced at all by some of the emerging west coast LNG export opportunities potentially enhancing duration or level of interest of that asset.
Well, yeah. So I think you had of Linda are.
Our alliance pipeline is.
1 of 2 assets, where we look carefully at re contracting for the future of the the rest of them, they're really we really don't see an issue with.
Uh huh.
The alliance is all about.
<unk>. However, it has the added benefit of.
Of going to walk Sable with with liquids and that's the that's a major selling point of differentiate differentiates it from other so yeah, we had a pretty big cut re contracted year over the last 12 months and we were able to re contract.
Albeit for short term understandably.
And we expect that to continue I will say you know lately, we've seen some you know some some movement some positive movement there in basis.
The future of I don't know I mean, the LNG is a ways away.
No.
Try it it's a bit difficult to tell whether that's going to have a material impact, but overall you would think that would be.
Positive for for Alliance.
Thank you.
Your next question comes from the line of Brian <unk> from Wells Fargo Your line.
It is now open.
Thanks, Good morning, So I'd say, you've got 10 to 15 RMG projects underway in Canada. I guess my question would be do you plan to enter the U S market at some point.
I know the tradeoff would be you wouldn't have your utility as a customer but you clearly you have expertise in the market. There is big so would you.
Be open to producing and selling R&D in the U S. The third party customers.
Okay, well maybe.
Conceptually, we'll have the San to answer that but I know bill that has got some comments here too.
How this relates to his gas transmission business.
Sure. Thanks, Tom.
Yeah.
You're right the experience that we're gaining by developing these projects the R&D projects that we're working with the the various participants.
Participants them and our customers is something that we can build on so we have obviously the the relationship.
You've announced.
In Canada with Walker on Comm car, that's going to help us continue to build that expertise.
And across Canada, and I know, both the Bill's team and my team have been talking about what that future could look like with the last and while there are instances.
Just where are we can you know.
I'll tie in to some of the existing infrastructure. The bill has in the U S. We do have obviously an opportunity to take them leverage the knowledge. So I think you know.
The bill can expand on bad we're looking at it and and if again it fits.
But we end the all of the criteria that Allen Collin have talked about them, it's something that could eventually be development, but maybe bill you can expand on how your team's been of dressing the U S interest.
Yeah. Thanks, Cynthia Yeah, I mean this is.
This is a huge opportunity for us in the U S.
We're very.
Very lucky to have them.
The experience that Cynthia his team.
Has and has generated and continues to generate with the sort of cutting edge projects.
On the LNG front for us.
Our infrastructure.
From the Gulf Coast.
Kind of just over to Florida, all the way up to the northeast where we go by.
Awful lot of potential sore sites for for RFG, and it's probably 2.5 to 2 factors or 2 opportunities 1 serving the local distribution companies, which is an obvious and partnering with them to do.
But then second some of these more closed loop.
The opportunities where you have major industries major farms that want to get credit for.
Further operations and basically serve them with with.
With top with the RMG that they actually get produced gets produced into our system. So the.
I think I think the opportunity because of our reach is tremendous.
Great. Thanks, and then can you just give us a sense of how large the the Richland expansion project would be either from a.
That capex or capacity perspective, just just looking for some book ends around the project.
Yeah.
Oh go ahead go ahead bill.
Sorry, I don't know, it's about $1 billion project and that's.
It's basically the looping.
Looping and compression along our existing right of way and are in Tennessee.
Thank you.
We have reached our time limit and are not able the bank and it further question at this time I will now turn the call over at the Jonathan Morgan first final remarks.
Thank you and thank you for taking the time to join US. This morning, we really appreciate your ongoing interest in Enbridge.
As always our Investor relations team is available to address any questions. You may have following the call and once again, thank you and have a great day.
Thank you ladies and gentlemen, we appreciate your participation. This concludes today's conference you may now disconnect.
[music].
As all of them.
[music].
The.
[music].
Hum.
[music].
Yes.
[music].