Q2 2021 Enbridge Inc Earnings Call
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Welcome to the Enbridge incorporated second quarter 2021 financial results Conference call. My name is friendly and I will be your operator for today's call at this time all participants.
We are in a listen only mode. Following the presentation, we will conduct a question and answer session for debt investment community. During the question and answer session. If you have questions. Please press star 1 on your attach so unfold.
Please note that this conference is being recorded I will now turn the call.
All right they tried and it's on mortgage Vice President Investor Relations, Jonathan you may begin.
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 Grunting Executive Vice President.
It's a bad financial officer, Vern Yu executive Vice President liquids pipeline.
Bill Yardley executive Vice President gas transmission, and midstream, Cynthia Hansen, Executive Vice President and cash distribution and storage and Matthew Ackman Senior Vice President strategy on power.
As per usual this call will be webcast and I encourage those.
Those listening on the phone to follow along with the supporting slides a replay of the call will be available today on a transcript will be posted to the website. Shortly after we.
We will try to keep the call to roughly an hour and in order to answer as many questions as possible will be limited to 1 plus a 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 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.
Asian, 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.
<unk> 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.
On a couple commission and the gas utility.
That drove strong first and now second quarter numbers, so were confirming full year EBITDA and DCF guidance as you saw on our release.
The $17 billion capital program is on track with 10 billion schedule for in service this year and that will drive our 3 year financing.
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 a vehicle provides more buffer and releases great value for a non strategic asset.
Transmit.
While upstream investment remains disciplined we're seeing a pickup in commercial 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.
Pleased with that.
So the message is 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.
Global 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 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 countries.
And as you've heard us 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 at.
Also crucial in supporting renewables growth and reducing global emissions and.
And that's playing out 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 and <unk>.
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 we've been 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 the energy future.
Simply because our businesses have both conventional and low carbon growth opportunities in this chart illustrates how we think about this duality.
Demand for capacity on our natural gas and crude systems means more modernization.
<unk> and expansion investments toward export infrastructure in particular.
That's because over 80% of conventional demand comes from petrochemical industrial power and heavy duty transportation, which continues to grow globally with limited alternatives at this time.
In addition, we expect our low carbon growth opportunities to scale up.
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.
R&D hydrogen and Ccs.
Chris will take time to be a bigger part of the energy mix, but we're investing in these opportunities to day across our businesses.
In liquids, we are well positioned to support our customers' emissions goals through Ccs on.
On to come back to this 1 in a few minutes.
The same holds true for gas businesses, where we have.
<unk> saline aquifers.
Net connections to customers and utility platform, we're investing in hydrogen and RMG today.
Importantly, these low carbon investments will ensure continued utilization of our assets for a long time, while lowering emissions intensity.
So thats, how we are positioned early for the transition.
On to 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% to 2% from embedded revenue escalators and of course that provides good inflation protection.
With low capital intensity optimizations and productivity improvements.
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.
Colin is going to go through the framework.
And priorities, but in summary, we have an attractive organic 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 starting with liquids.
We just completed a 160000 barrel per day expansion of the woodlands system to keep up with current production and those volumes of course support downstream throughput on the mainline.
It's.
A good example of the low cost opportunities we have on liquids.
Now on Q2 customers took advantage of the shoulder season for refinery and upgrade or 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.
Gross per day, and we've laid out this trajectory in the chart.
On mainline contracting the hearing wrapped up last week as you heard.
Shipper support continues to be strong and noteworthy that some dissenters, even while disputing the negotiated toll are supportive of contract.
Onto line 3 we received a positive decision from the Minnesota Court of Appeals, which reaffirmed the PUC permits.
Construction wise, we're tracking to schedule, where about 80% through mainline construction slightly higher on stations. So we're moving along well on and continue to work on water crossings.
All 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 and spend with tribal businesses their workers and.
And communities.
Lastly on the liquids 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 targets, I think little by little debt.
Is 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 and make a ton of <unk>.
We're excited about this opportunity and our strategy is driven by the fundamentals.
And while the technology it really isn't that knew we need clarity on policy to <unk>.
Sharon and attract capital.
So as you know in the U S of 45, 2 provides a good foundation, that's starting to make things happen at even faster pace.
In Canada incentives are on the way as well and we're at the table to help shape that outcome.
But important to recognize that the meters and our.
<unk> will be driving the timing.
We're in discussions across industries to explore how we can support them.
Our strategy focuses on the full value chain from capture through to storage, which aligns well with our assets and we believe a 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 just entered into.
A partnership with Savant day, which has developed 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 our strategy.
Moving to the next slide on gas 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.
On T cells to the 2 of the 5 stations.
And the initial segment of spruce Ridge are 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 about 800 million a day to the Calcasieu pass liquefaction plant.
And there we're on track for Q4 in service and Thats, 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 <unk>.
Modernization program and that's on slide 12.
The criticality 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 a 25% per.
<unk> and pressure 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 a billion dollars per 1 billion annually.
For which will occur on a solid return and related to that we'll be initiating a section.
Rate filing on Texas Eastern shortly.
We've also received FERC approval on our alliance.
And then any 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.
Picking up and our new Ridgeline 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 is selected through the <unk> review process.
A great example of how natural gas can preserve reliable and affordable energy, while lowering emissions by replacing coal fired generation.
Pending TVA is 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.
On to the next slide on gas distribution.
The utility just continues to grow and deliver solid results.
We're on track to add another 45000 cut.
Customers this year and we're very excited to be moving forward with our community expansion program comprised of 27 new connection.
<unk>, including remote indigenous communities.
Along with system modernization and reinforcement projects, we see investing 1 to 1.5 billion annually in.
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.
And this 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 different project went into service. This month that makes 3 projects in operation. There is another 3 in construction with 10 to 15.
<unk> in the hopper, 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.
<unk> validated the green power to gas phase. So that's good to see and we're now constructing phase II to inject hydrogen into a closed loop system in 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 plan to blend up to 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.
<unk> first good progress on the 3 French offshore wind projects.
On Saint Nazaire 13 of the 80 foundations are done and turbines are being manufactured from fee comp in Colorado's.
These 3 projects are scheduled for in service in late 'twenty 2 through to 2020 for the first.
In 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 near shore and prolonged on large which.
As 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 on renewables.
<unk> space has made our assets more valuable.
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.
On to slide 17, and an update on solar cell powers Theres lots happening here as.
Yeah.
We now have 3 projects in service 2 on our gas system and 1 in liquids.
We sanctioned another for liquid stations recently, which will add 40 megawatts. So it is beginning to be a meaningful part of our renewable strategy.
What's exciting is the broader opportunity across our L. P.
Well ATM businesses and you can see the dots here show the location of pump stations on the liquid system and compression on natural gas.
We see the potential to deploy up to half a billion dollars over the next few years with more after that.
Of course, these investments will need to clear our hurdle rates.
And they also 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.
And do you know, it's a big 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.
Cash flows really a conveyor belt, if you like of additional cash flows for many years.
And in turn.
<unk> financial flexibility and investment capacity, which is clear on slide 19.
Yeah.
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 on 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 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 on.
Across the board our agencies recognize the strength.
Currently even now prior to.
Executing on our 21 capital program.
We've been Triple B, plus rated with with 3 agencies for a while now on 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 will be to live.
Or the lower end of that target range to preserve maximum optionality.
On slide 20 on 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 financial.
<unk> neared responsible dividend growth and $3 billion to $4 billion per year of ratable utility like in corridor 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.
Couple of times conventional 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> 60.
Strength <unk> per share.
I will 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 for energy demand and it's clear that the economic recovery is now in full swing.
Second.
<unk> <unk> foreign currency translation 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, where.
It really impacted by the weaker U S dollar.
Which is 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.
Negative 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 connect contango conditions.
<unk> and related storage gains due to the pandemic.
As a reminder.
These relate to unused demand charges they are non speculative trading losses.
Finally in DCF are 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 another 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 EBITDA operating performance.
For the first half of the year was a little better than plan, but that's been partially offset by a weaker U S. Dollar as I mentioned and negative contributions from energy services also.
Overall, we expect first half trends to continue through the second half of.
For 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 substantially hedged, which materially protects us from a weaker dollar.
Secondly.
1 on inflation.
Potentially trending up but 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.
Our call volume perspective, a reminder, that seasonally Q3 is our lowest quarterly contributor of course with lower heating days in the summer months affecting our utility or wind resources in renewables and some seasonal effects on our liquids system.
Related to maintenance I should also mention that Texas eastern.
Our approach.
Is it fully resumed.
Now in sooner than expected previously.
Of course Q4 <unk>.
<unk> 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.
Survey cash flow as per our original guidance.
Turning to DCF, our second half results will of course align with EBITDA, but should also benefit from continued favorable interest expense.
Lower rates favorable USD translation and lower financing requirements.
Generally expected.
Nicely due to the anticipated proceeds from the 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.
<unk>, we've integrated sustainable practices into our business for a long time each of the EPS 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 operations thereafter.
A few numbers that we've spent over $1 billion with indigenous groups since 2017, including direct spend and sub contracting opportunities with.
With indigenous businesses.
And in 2021.
We contributed $3 billion of property taxes and income taxes.
To various levels of government.
Our continental Workforces diverse already and we're striving to end.
Enhance all elements of diversity, including at the board level to achieve our 2025 target.
On the G.
Our board is highly engaged with the diversity of backgrounds experience and thought and importantly.
Our ESG priorities are tied to enterprise wide management compensation, ensuring alignment to our performance.
Our objective is to be a leader in 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.
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.
And we think are critical to our long term success of.
Of course, we followed up the framework with a $1 billion sustainability linked bond in June which combined with our $1 billion credit facility also stimulated link earlier this year that now ties already 2 billion in financings to our ESG performance.
We.
As 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.
For example, approximately 40% of our <unk> order book.
Where ESG type mandate.
Investors, adding further demand to our already diverse investor falling.
Before I turn things back to al to wrap up I'm excited to introduce and invite you to attend to event 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.
Think 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 to connecting with many of you in person, it's it's been awhile.
About how and back to your home.
Okay. Thanks, Colin just before we open it up just a few takeaways I think 2021 as 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 utilizes.
Utilization in financial performance as you just heard is strong.
Execution of the program is tracking to 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.
Essential to the energy transition.
As you've 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 we'll 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.
You have a question. Please press star 1 on your attached on phone if you wish to be removed from the queue. Please press the pound sign our day Hashed E.
If you are using a speakerphone you may need the piece on the handset.
First before pressing the numbers once again, if you have a question. Please press star 1 on your thoughts going forward.
Jeremy a net of J P. Morgan is on the line.
I just wanted to start off here on the R&D side really.
Just wanted to dive into the strategy a little bit I'm, just wondering what the current <unk>.
Demand for RMG that Youre seeing here is there any differentiation by sourcing.
Carbon attributes just wondering if commercial industrial customers or.
Adjusted <unk> for the negative attribute.
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 if bill has anything to add on the gas transmission front.
Thanks, Bill Yeah, Jeremy we're having.
Really.
Strong interest from various commercial and industrial use.
Users of course across Ontario on parts of Quebec, we have.
The opportunity to deliver that and then.
Sure.
We've been able to facilitate the delivery of R&D across.
North America because of course, it trades in a 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.
As al mentioned with Com car and Walker industries to really help build that out across Canada. So it's something that we're seeing some strong interest we had been able to facilitate some of those transactions and we look forward to the opportunity to expand on that in the future.
Okay.
Partnerships.
To help them.
Yeah, I'll just add a couple of things first of all I think on the C&I side, Yes, we are seeing direct interest.
But in a lot of cases Julien.
The local distribution companies like some peers that are as you know.
From major customers that are looking to work with us to.
Bring orange and from various sources and they're motivated.
Yeah.
Their main trade Association <unk>.
Even if it's just from residential months of getting away from C&I is saying hey, this could be on this could.
On par gas.
By the middle of the century so.
There is an awful lot to do here between.
Cynthia this utility.
Are fairly substantial transmission system.
Got it so it sounds like it could be a supply diversification away from.
Do you have an LNG in the winter in the northeast.
Yeah.
You'd have to get on it.
Sure.
Shifting gears, a little bit here on carbon capture.
And just wanted to see how you guys think about the total addressable market here.
Seems like Theres been a lot of focus on the oil sands producers, but it also seems heavy industry.
Russia Theres no other path to Decarbonize, Besides Tcs and just wondering.
How you think about that and the opportunity set both in Canada, and I guess, the U S as well.
Yes, maybe I'll start it off and Vern can add Jeremy.
First of all Youre, absolutely right in the.
<unk> is on the total addressable market very I mean.
The bottom line is it's a big number it's likely in the order of 2 trillion.
And I go back to my comments earlier on if you look at the <unk>.
Sources of emissions reductions opportunities I think everybody is familiar with with them.
But energy efficiency.
Certainly renewables will be a big chunk, but a very significant and for certain chunk will be <unk>, we just don't see.
How we meet the goals without <unk>. So the capital is going to be large.
And.
Number existing infrastructure players like ourselves are going to be involved and 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 to transportation and ultimately sequestration.
And.
If you look at the assets for example on in the utility good storage assets there that are applicable.
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.
<unk> will be a big part of that so it's large as I said earlier, it's not.
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.
Sure.
Thanks Al.
Jeremy you're 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 is this.
Society, and <unk> can make a meaningful difference in our emission reductions. So I think the EIA has put out stats out there that to meet global net zero goals that tissue is anywhere between 9 and 30% of the total carbon abatement, we want to see.
See by the middle of this century.
We're actively talking with customers.
And the oil sands as well as across heavy industry to see what we can do to help reduce emissions, obviously in Canada, we need a little bit more clarity on the investment tax credit but in the U.
We're also very active so.
I think in our announcements today, we talked about on opportunity to work on new technology player Savant, and we will be focused with them looking at industrial LCC U S 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. Their line is now open.
Good morning.
I can share just on capital allocation and starting with asset monetization.
<unk> strategy is.
If it away from as needed for funding to something more opportunistic like you've done with <unk>. So I'm. Just wondering are there other material opportunity to do more that we might see in the relatively near future and if so how.
How do you think about the timing of that is it just selling it down when its opportunistic and deploy.
It's really true capital later or is it going to be more about timing.
For when you've got deployed.
Deployment opportunities.
I think the main driver is the former.
Really it's driven by.
Robert the constant look.
At the portfolio and whether or not.
Again.
Monetize assets.
Superior value as you've seen I mean.
I think the bigger picture, we're generally happy with our asset mix certainly the commercial structure to that underpins them. You know we have very little G&P exposure now.
We see ample converge.
Conventional runway.
In those businesses and as I just went through the businesses support.
Our strategic actions to support the transition.
<unk>.
We look at every possible opportunity to release value I think we've proven that.
<unk>.
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 <unk> as well so.
We'd certainly consider looking at other things.
We received full more than full value for them. So it's going to be opportunistic as Colin pointed.
The balance sheet is in very good shape, so it'll be selective.
Monetization too.
To generate value, where we can on a on a.
I guess specific basis, when we see those opportunities.
Got that.
And then if I.
Okay.
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 to ascribing value to some of the soft back.
Yeah.
Rounded being ESG friendly and I guess, specifically thinking about your willingness to accept single digit equity returns for some of the solar.
Gulf power and.
And then I guess the second part of it is as this pool of potential projects grow if.
If you exceed that 3 to 4.1 billion in capital thresholds.
Hold that you've set out does that change how you approach capital allocation with respect to the pecking order.
Or your priorities of maintaining net leverage range.
Your self funding constraints.
Okay, well Colin go ahead, Hey, Robert Yes, Thanks for that question.
We've got a.
Our robust and mature investment framework that we have.
You used with disciplined for many years here.
And.
Yes.
Yeah.
We don't generally except.
Single digit returns maybe.
Anywhere except in Cynthia's business, where there is a 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.
<unk>, 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 <unk>.
Financial capacity outlook within that 5% to 6 billion per year, we've got extra.
Excellent line of sight to 3 to 4.
And everything else will kind of compete against each other.
And <unk>.
<unk> energy transition however.
There is.
Just around this that maybe this question was going we do consider.
<unk> and have for a couple of years in our in our framework.
To either.
Reward or penalize the different.
Different investments around our hurdle rates.
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 way, we're thinking about the transition at 50000 feet, it's really a parallel effort with the.
The core conventional growth that we have so if you look at what Colin said about the <unk>.
Capital.
Policy 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 you're used to seeing from us so that extra $2 billion on capacity.
Really is.
Next we will have to compete straight up whether it's matthews renewables business or whether it's solar cells power or other other types of investments including more.
Organic growth.
And if.
If you look at how we've prosecuted RMG and hydrogen incentives business.
It's basically.
The same type of returns that we've seen so Collins point about being disciplined on I think is the key here.
And although it's important to carve out some.
Before the transition.
We don't expect to take.
Significant reduction in return.
Okay.
Okay. That's great. Thank you very much.
Okay. Thank you.
Your next question comes from the line of Shneur very Schuman from UBS. Your line is now open.
Open.
Good morning.
Yes.
I'm wondering if the if we can start off or can I guess can really continue the discussion of legacy CSI. It's been topical today, you you announced the Mou today debt 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 thought it was a $1 billion of capital equals a I think was 1 megaton for example, I.
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 per.
Based on unique thicker more pipeline walls.
Do 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.
I'd say those are great questions.
Pressure from a technical perspective.
Our view is that new pipelines or better than existing pipelines.
<unk> carbon C O 2 precisely.
Need to operate at significantly higher pressures to.
Could deal with a liquefied cotwo so.
So 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 kind of minimize the overall costs. So.
While there is going to be a need for hubs.
Throughout North America.
I think the shortest pipelines you can build build to those hubs will be the most cost advantageous so from our perspective, it's really looking at the individual customers need.
On 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.
Erika.
That's good.
Involve building new pipelines that have a very short distance to sequestration out.
Yeah.
That makes perfect sense, and then maybe to continue on here.
I really enjoyed the slide talking about your connect flexibility.
And 2 thirds of the $46 million on Kona.
The high priority on both book and so forth. So you kind of have this this $2 billion flag and then what.
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.
<unk> how much capital are you looking to have or how many projects in terms of dollars are you looking at debt.
That could move into the secured backlog debt would be.
Classified by most investors as energy transition related capital.
Is it something where the backlog can grow by $5 billion over the next 3 to 5 years or is it something.
On that where it grows by 10% to $20 billion.
Okay, well, let me let me start off then Colin can add.
I think we've outlined.
Certainly at Enbridge day.
And in other places if you look at the backlog.
On traditional terms the way we've added.
All up there is somewhere in the order of $30 billion on that now we've obviously emphasize that not not as much because we're continuing to focus on the efficiency of capital and minimizing our large scale investments, but it's around $30 billion over.
The next few years income so that translates to roughly $5 billion to $6 billion a year Shneur and so if you you kind of back into each of the businesses.
Youre looking at liquids, roughly 1 billion or 2 a year in terms of Optum.
Optimizations expansions and extensions and what <unk> is looking at.
I think <unk> 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 on half again reinforcements customer adds.
The new community expense.
It shows that we are talking about and then I think in in.
And Matthew business and renewables.
Somewhere in the order for billions of years. So my point is.
It doesn't take too much to fill up $5 to $6 billion a 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 on how we.
Deploy it.
Organic to outcome.
Maybe just.
A reminder, that an extern youre asking about energy transition oriented capital on that.
Sure what you've got in that bucket, everybody is defining that a bit differently, but.
I think we would argue a lot of our.
Core businesses will contribute.
Any energy transition, so I think al's answer captures that globally.
Within a more refined definition of energy transition I think.
And I'll mentioned, there's not an immediate.
Scalable investment opportunity on some of these areas.
Other than renewables, which.
True Matthew is pretty excited about and we can allocate $1 million to $2 million a year.
In that business.
In the immediate term I don't that helps round that out.
No it perfectly does.
Appreciate the color today and I hope you guys enjoy your weekend.
Okay. 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 5 billion per $1 billion a year.
In your comments you did highlight.
Adding a new compressors or updating the compressors can significantly.
Significantly reduce.
Emission there I just wonder is there some additional upside here, adding seats to the U S. So the compressors or even just going straight to electric drive plus adding in additional on site solar.
Just wanted to get a 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 that we're currently doing is gas for gas. So it's a replacement of gas were.
We are basically putting on new new equipment, that's far more efficient.
But the future.
Including things like the TBA project on 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.
An opportunity to site gas or to look at our existing gas and put the CCA us on new pipeline and carbon capture on site or very close in.
I will say, Rob there are some places where our.
Our storage we've already proven out there it's good storage for.
For Karma so.
Pretty good opportunities in that.
So I'll just go back all of the above.
And with the focus on what's most economical on what reduces our our emissions footprint the best.
Okay.
Maybe as a follow up to that.
If you are able to eke out some additional capacity just with the new compressors there.
You get customer support in terms of contract initially or do you think that would be largely be related to kind of do.
Rate cases are every so often.
Well anytime we add capacity.
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 on them just by its nature is more efficient than the prior unit, though it has the same rated horsepower, but in order to deliver more.
It gets certificated you have to go back from FERC.
That's helpful.
Helpful, but it makes for a very economical expansion.
It does happen.
Thank you.
Okay. Thanks, Rob.
Your next question comes from the line of Michael on the fetus 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 old economy stuff, but just curious you have always kind of outlined at the investor day or analyst days.
Myriad out of potential growth projects. Once you got line 3 done just curious how youre thinking about some of those meaning I don't know the extra 100000 barrels at southern access or may be.
Flanagan south expansion and some of the stuff.
On the western part of the system as well.
Okay. Thanks.
Yes.
Youre absolutely right.
The liquids mainline in the downstream pipelines have late in Q.
Capacity.
<unk> 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 on when we execute those.
Got it okay.
Do you see those as things that kind of happened not long after line 3 comes online.
Or is this something that could take another few years and you'd need to see a ramp in 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 fair.
Character market expansions.
And I do think as we see the economy recover and as producers get.
Confidence that the economy's coming again, we should see some good.
Progress on Us got it.
And last.
This would impact you guys and 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 multiple years potentially becoming long pipeline takeaway once trans mountain and line 3 are both on service.
<unk>.
Im 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 on line.
And.
Provide egress for quite some time now so.
Our understanding of the market here in western.
San Jose is Theres, 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 barrel day there are some.
Very close to completion brownfield projects with the producers.
Turn cash would come to market.
Very quickly as well with sufficient egress. So once line 3 goes into service we.
We will provide a little bit more your gross trans mountain will provide some more aggression that should fill up relatively quickly with all these projects that are.
Or is that really just waiting for that to show up.
Got it.
A quick add on to that Michael.
If you look at the fundamentals here and we just saw this through 2020.
The fundamentals for heavy are very attractive to U S. Refiners, So I think given.
And the fact that cash.
Cash cost it really come down.
On the oil sands in terms of break evens and they've done a good job in bringing down full cycle cost. So I think there's a pretty good opportunity here for the oil sands to surprise again going 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 book.
You talked about there.
Got it.
There seems to be just a general.
Attitude and 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 in customer behavior impacting us Gulf Coast strategy and also the appetite for maybe.
Mainline contracted.
Well I think our U S Gulf Coast strategy remains unchanged and should we see strong demand.
For Terminalling auctions in the Houston area, whether that's per tankage or VLCC.
Export and having that Optionality will always be an 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.
So.
I think both dovetailing to each other where a good set of our customers want to know what they have on our system day 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.
So 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.
<unk> and.
Providing evidence that the.
The offering is good for industry as a whole that is supported by more than 75% of our current shippers.
And we are very hopeful for a positive decision later this year.
Robert I think youre right about the.
Conservation of capital I don't think Thats going to change anytime soon but if you if you think about the fundamentals.
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 golf I think thats.
<unk> intact, including on the LNG from that Bill runs but.
The key to all of this is and you're 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 on tools are our low enough to attract these customers.
Thank you that's a good answer but also a good so going to on the other question on probably more appropriate for that.
As you mentioned, we're seeing that.
Inflationary environment in terms of.
Capital spending.
And that's true.
Seems to be translating also into the offshore wind market on.
On Thursday.
From the any improvement.
The behavior.
Our bid activity is becoming more rational offshore offshore.
Wind businesses.
Go ahead, Matt.
Sure Hey, Thanks, Ralph.
Probably the answer industry wide.
No.
Not a lot of.
Not as much discipline as we'd like to see generally.
And 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.
As to the business, we've got our existing pipeline of assets rich.
Largely fixed price contracts associated with construction debt.
We're locked in previously and we're on track and on budget on those construction projects, which is which is great.
Going forward.
We're just going to be very disciplined, especially in terms of these.
High price leases.
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.
<unk>.
It hasn't exactly been their cost per but we're finding selective select opportunities, where we see good value still on 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 the line of Bob.
<unk> from BMO. Your line is now open.
Hi, Thanks, good morning.
And on renewable power you have debt east west highlighting.
In 2022.
Can you comment on whether it's electric.
Electric transmission is that is there something you want to build on the expand book of new transmission opportunities or is.
Is that more on a non core opportunistic bucket.
Got you on.
To answer that or sure.
Hey, Thanks Ben.
I think it is opportunistic.
I think it's the latter category primarily.
Transmission is something that.
Is still very challenging from a permitting standpoint.
On a respond obviously.
It's because we need more transmission for renewable.
But.
It's easier easier said than done so.
Our focus is going to be primarily on the contracted renewable power projects and we don't have a lot of plans to invest and.
Transmission as far as east West tie that project has gone really well.
And so that 1 we like a lot of it is a rate base regulated return type structure, where she'd like and.
It's right on track and should be in service early next year, so at that time.
We'll see what we what we do with that but we'd like.
The asset a lot on it's got a good solid safe return.
Okay, Great and then moving into the.
Canadian LNG export.
Hey, guys. This for awhile Theres, some news flow up there new partnership form.
Could we.
Your position there.
On LNG export in any sort of maybe more how you're having conversations that recently.
Okay, well, it's bill do you want to take that 1.
Yes sure.
There are obviously big opportunities and we'd like to see things get organized.
Actually.
<unk> is quite exciting to see.
What the Donetsk.
Most recently in having a project that sort of led die by first nations.
And that fits well with us we.
<unk> with the local community is pretty well and then with first nations well like I think are 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 you're going to approach those obviously very.
Very cautiously but.
But but good opportunities and then I'll just get on a comment about the Gulf coast.
Gulf Coast has actually.
Sure.
<unk> seen a bit of a resurgence or at least a pickup from where they left off maybe youre on a half ago.
And.
Our efforts there so they're not as grand.
They're very manageable.
And there are a number of something so.
Good opportunities in LNG for us hopefully.
Mind, if I got that and then.
Just 1 other thing I'll add to it.
<unk> of course.
The good news is we're well situated there on on our West coast mainline and so whatever happens out there.
Sure.
Into the future aside from the connector itself that bill was talking about it it's going to be good for our existing business there.
Alright, Thats very helpful. Thank you.
Okay.
Your next question comes from the line of Linda is there a geely of BB Securities.
It is now open.
Thank you.
From an operational perspective, recognizing that your energy services.
We are dealing with a number of factors compounding.
The negative results I'm, just wondering if you could give us a sense of what sort of demand.
The charges, we might expect prospectively or will they be Jimmy.
Diminishing over the next year or 2 and would you.
Just bringing them opportunistically or can you comment on your strategy and energy services generally.
Hey, Linda column, Yeah. Good question, So I think what you're seeing flow through.
January results right now as you know.
Pretty much.
Worst case scenario suddenly any worse on assets should should get better as a conditions improve any 1 of those 3 strategies we typically.
See some value from.
Secondly, if not.
We do have.
Contracts that roll off in the latter basis from taper down so.
I look forward to seeing this improve.
But no change to strategy.
No no if its a small business it's.
I think it's smaller than our peers marketing businesses.
Its typically back to back it's tightly risk control that worked well for us last year.
Huge year.
This year, not but it still fits in it.
Typically generates.
Zero to 1% of our EBITDA, so its well contained.
Okay. Thank you recognizing that.
Your line pipeline is on a big part of your business, but maybe just comment generally on re contracting on your natural gas pipeline, specifically alliance on how that might be influenced at all by some of the emerging west coast LNG export opportunities potentially influencing duration or level of interest on that asset.
Yeah, So I think you.
Linda.
Our alliance pipeline is.
Probably 1 of 2 assets, where we look carefully at re contracting for the future of the rest of them that.
It really we really don't see an issue with.
Yes.
The alliance is all about.
However, it has the added benefit of.
Going to lock Sable with liquids and Thats, a major selling point to differentiate differentiates it from others. So we had a pretty big country contracting year over the last 12 months and we were able to re contract.
Sure.
Albeit for short term understandably.
We expect that to continue I will say you know lately, but seeing some some some movement some positive movement there on basis.
The future I don't know I mean.
On juice is a ways away.
So.
It's a bit difficult to tell whether that's going to have a more.
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.
Okay.
Thanks. Good morning, So you've got 10 to 15 RMG projects underway in Canada, they get from.
My question is 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.
It is now producing and selling RMG in the U S to third party customers.
Okay, well maybe.
Conceptually, we'll have Sam to answer that but I know Bill has got some comments here too.
How this relates to his gas transmission business.
Sure. Thanks, Tom.
Yeah.
No you're right.
We experienced net we're gaining by developing these projects the R&D project Pavel we're working with the various.
Participants and our customers is something that we can build on so we have obviously the.
<unk>.
You announced.
In Canada with blocker on Comm car, that's going to help us continue to build that expertise.
And across Canada, and I know, both Bill's team and my team and talking about what that future could look like with <unk> and while there are instances.
But where we could.
I'll tie in to some of the existing infrastructure that bell has on the U S. We do have obviously an opportunity to take on leverage the knowledge. So I think it's something.
That bill can expand on that we're looking at it and.
Again, it fits with.
Within all of the criteria that Allen Collin have talked about.
It's something that could eventually because the ultimate but maybe bill you can expand on how your teams in addressing the U S entrants.
Yeah. Thanks Cynthia.
This is a huge opportunity for us in the U S.
We are.
Very lucky to have.
The experience debt Cynthia's team.
And has generated and continues to generate with sort of cutting edge projects.
On the LNG front for us.
Our infrastructure.
From the Gulf.
But Florida on all the way up to the northeast would go buy.
Awful lot of potential sore sites for RMG.
It's probably true to fact that there are 2 opportunities 1 serving the local distribution companies, which is an obvious on partnering with them to do.
Gross but then second some of these more closed loop.
Opportunities, where you have major industries major farms that want to.
Yet.
Credit for.
Further operations and basically serve them with with.
Do that with R&D that they actually get pretty gets produced into our system. So.
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 rich line expansion project would be either from.
With Capex or capacity perspective, just looking for some book ends around the project.
Yeah.
They thought.
Go ahead go ahead.
Oh, I'm, sorry that was about $1 billion project and.
But it's basically a new thing.
Looping and compression along our existing right of way and income.
On a C.
Thank you.
We have reached our time limit and are not able to take any further question. At this time I will now turn the call over to Jonathan Morgan for 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 based on.
Today's conference you may now disconnect.
Okay.
Good day.
Yes.
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Reported.
Yes.
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Yes.
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