Q3 2021 Enbridge Inc Earnings Call
Welcome to the Enbridge, Inc. Third quarter 2021 financial results Conference call. My name is Polly 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.
Session for the investment community.
During the question and answer session. If you have a question. Please press star one on your Touchtone phone. Please note that this conference is being recorded I will now turn the call over to Jonathan Morgan Vice President Investor Relations, Jonathan you may begin.
Thank you Tony Good morning, everyone and welcome to Enbridge, Inc. 's third quarter 2021 earnings call. Joining me. This morning are al Monaco, President and Chief Executive Officer, Vern, Yu Executive Vice President and Chief Financial Officer, calling Grunting Executive Vice President liquids pipelines Bill.
Bill Yardley executive Vice President gas transmission, and midstream Cynthia Hansen Executive Vice President gas distribution and storage and Matthew Ackman, Senior Vice President strategy power and new energies.
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 later today and a transcript will be provided on the website shortly after.
We will try to keep the call to roughly one hour and in order to get to as many answers to your questions as possible, we'll be limiting the questions to one plus a single follow up as necessary.
We'll be prioritizing questions from the investment community. So if you are a member of the media. Please direct your inquiries to our communications team, who will be happy to respond.
As always our Investor relations team will be available following the call for any detailed follow up questions.
Onto slide two where I'll remind you that we will be referring to forward looking information in today's presentation and Q&A and 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 all.
Also be referring to the non-GAAP measures, which are summarized below.
And with that I'll turn it over to Al Monaco.
Okay. Thanks, Jonathan Hello, everyone.
Well to start off here, what you see in the photo is there a new Ingleside Energy Center near Corpus Christi, with a VLCC just being maneuvered into place for loading.
It's an important investment for us on many fronts. So we will come back to ingleside in a few minutes.
It's been a strong quarter operationally and financially so vern will take you through the results by the way <unk> was recently appointed CFO. He's held a number of senior financial roles at Enbridge and most recently headed up our liquids business, which Colin grunting has taken over.
I'll cover the high points of what's been a catalyst quarter and year for US followed by a business update.
Before I do that though let me speak to the current state of the energy markets and as a reminder, our perspective on this is from a company that's been focused on the energy transition for years.
It's obvious we need to reduce global emissions and that we're moving to a lower carbon economy and.
And we think that existing infrastructure is essential to that transition.
As you heard us say before we see ourselves as a bridge to a cleaner energy future.
By leveraging our businesses and by achieving our own emissions goals.
We're transitioning our asset mix in line with changing fundamentals in building on our early mover advantage and wind solar hydrogen and RMG.
But it's also very clear that energy demand will continue to grow and that economic growth will always depend unconventional energy.
So squaring these two realities comes down to the pace of transition and ensuring we secure low cost reliable energy supply while that happens.
The realities of this careful balance are playing out in energy markets today.
Stimulus spending and recovery are driving GDP growth.
Oil gas and product demand are up and should outpace last year on the way to pre pandemic levels.
Pet Chem demand was resilient through COVID-19, but now even jet fuel has come back.
As you've seen natural gas demand is extreme, particularly in Asia and Europe.
So consumption is up and supply disruptions and tight inventories are creating an imbalance.
Normally all of that is self correcting a supply response, but this energy crisis that we're in right now.
Is entirely about underinvestment in all forms of energy.
Which is creating havoc with consumers industrial competitiveness.
And inflation.
Higher energy prices are impacting consumers in developed and developing countries.
Spikes in electricity prices heating cooking and filling up the tank.
Higher industrial feedstock costs also impact competitiveness and again that rolls out to the consumer so agriculture manufacturing pharmaceuticals transportation components technology and housing.
And supply issues are impacting reliability, we see rolling blackouts and rationing in China and India.
Increasing coal power generation of all things in Germany.
Fuel shortages in the U K.
In the U S northeast gas generation is running at five year highs and we're seeing switching to fuel for electric generation.
All of that to say the energy transition is a reality, but we need to be thoughtful about the pace and execution with the consumer in mind.
And it's clear if it wasn't before that conventional energy will be critical part of the supply mix for a long time.
So the point being sure that the transition needs to be driven by a mix of balanced policy solutions. Most important in our view, we have to embrace natural gas because it's simply the enabler of building more wind and solar supply among other things and it's a great source of reducing emissions.
Just like it has been to this point.
Incentivizing consumption based economy wide emissions reductions and efficiency measures and an immediate focus on regulatory certainty and support for Cc U S investment.
So onto the Q3 highlights.
Operationally all of our systems ran near capacity and that drove solid numbers and we're on track as you saw in our release to deliver EBITDA and DCF per share within guidance.
The balance sheet and financial flexibility are strong and we will move to the lower end of the target leverage range next year.
It was a big quarter execution wise was 8 billion going into service, which will drive 2022 cash flow.
And that's a great outcome in the face of a difficult permitting environment to say the least.
We also accelerated our U S export strategy and lower carbon opportunities.
All in good headway on priorities moving the ball down the field delivering good results getting projects in the ground and building our business for the future.
Moving to the business update beginning with liquids and line three.
A month ago now we completed the U S segment. So we're in full operation for Western Canada to the Midwest and with that we also brought on the southern access expansion to one 2 million barrels per day into Chicago.
Line three has always been about modernizing our system and to my earlier point, it assures Canadian and U S refiners have a reliable low cost feedstock providing affordable.
<unk> energy for consumers and industry.
Line three though also set a new bar for execution in the field.
World Class environmental measures.
Actively engaging with communities in a different way and developing deeper indigenous partnerships cultural and environmental and economic.
We still got work to complete restoration, but I'm proud of how our team brought this one to the finish line.
With line three in service will earn the full 93 and a half cent surcharge on all mainline barrels.
And returning the line to full capacity sets us up for downstream expansion to the Gulf Coast.
On line five the existing line and the Great Lakes Tunnel is also about safe and affordable energy.
The fact is <unk> five and the tunnel are essential to Michigan, but also the entire region and two Canadian provinces.
We're doing everything we can to make sure People's critical energy needs are not cut off like propane in the upper peninsula and jet fuel for the Detroit Airport as just two examples of many.
Independent experts concluded there is no practical alternative to line five other than thousands of more railcars and trucks higher emissions and increased energy costs.
Pretty sure people don't want that in fact, that's what the majority of the Michigander as you are saying.
80% or so believe the cost of energy is important to them and there is 401 support for the tunnel.
But we've always understood the need to protect the great Lakes, which is why we've gone to extra lengths at the streets, including continuously and independently verifying the entirety of the line.
Shutting down the line as a precaution and high wave and wind conditions and applying the latest in technology to monitor ship traffic to ensure there is no anchor drags.
We've committed to build a great lakes tunneling to reduce the risk to as near zero as humanly possible.
We received the first panel impairment last year and we're working on the remaining two.
So let's shift gears now to our export strategy.
A few years ago, we had a point of view on the evolving global supply demand fundamentals fundamentals and the need to point infrastructure to.
To the Gulf and to capitalize on growing exports.
As you can see the maps developed out we've built a big presence in the Gulf.
Our export strategy is entirely consistent with the energy transition.
Because north America is a low cost sustainable producer of conventional energy.
And LNG exports can displace coal, which is going to be a big driver of lowering emissions in Asia.
Our U S. Gulf Coast strategy began with providing full pass access for Canadian heavy to the Gulf and establishing a storage and blending hub.
We're bolstering our seaway dock capacity with our Houston oil terminal to provide expanded low cost waterborne access.
We've now built out our light oil export position.
Gray Oak initially gave us contracted pipeline ownership into corpus and Houston.
And the Ingleside Energy Center now gives us last mile connectivity to the light oil export path.
Ingleside is north America's Premier export terminal transiting, 25% of U S exports last year.
With 15 plus million barrels of storage and one 6 million barrels per day of ship loading capacity.
Angle side checked all of the strategic commercial and financial boxes for us.
It sources crude from the Permian and Eagle Ford connected by 3 million barrels per day of pipe capacity.
VLCC capable and its prime location on the outer harbour.
Commercially take or pay commitments fit the business model well and it came at an attractive valuation and we're very glad to have retained the operating team.
Finally, we evaluate every new investment at Enbridge through an ESG lens, and specifically, we need to see a path to net zero.
Ingleside is a new state of the art facilities were designed to reduce emissions in the first place, but we're also moving forward with a large inside defense solar farm.
That will allow us to achieve net zero on scope, one and two and contribute to scope III reductions.
Now it's worth just delving a bit deeper into why this is a business for the future.
It's clear that the Permian is among the most competitive basins globally.
And its scale low breakeven and proximity to markets means it's essential in any transition scenario.
And a competitive supply source in meeting global demand for many years to come.
Ingleside has the lowest basin to water cost structure of any export point in corpus or Houston.
And that's because our two VLCC birth can load at twice the rate of a suezmax.
And we avoid lightweight trips, which when combined with our outer harbor location saves roughly five days transit.
We also have capacity to capture incremental barrels and this is a big upside for us.
We will go after the low hanging fruit first which is to contract up existing dock capacity.
Which could add another 600000 barrels per day of loadings.
And then we'll build into the permitted storage that we already have and dock capacity. So another $5 5 million barrels of storage, there and 300 K of loadings.
Lastly, as part of our transition lens again, the terminals location and open land make it an ideal spot for greenfield and carbon capture development.
While we're on the topic of exports, Texas Eastern and Valley crossing are nicely situated along the Gulf, which puts us at the center of the U S. LNG build out and that pace should quicken now given the global supply crunch.
Not much doubt about gas his role in sustaining European and Asian economies, displacing coal and building renewables.
And these fundamentals drive more demand pull on our systems in just two years, our LNG volumes have doubled to one Bcf per day, and we will add another half a b with our Cameron extension that will feed calcasieu this year.
We've also built a nice portfolio of late stage development projects totaling about $2 billion Bill and his team are also executing a $5 billion secured capital program.
<unk> 3 billion of that is targeted for in service this year.
We've just completed our <unk> expansions for about 600 million cubic feet, a day of firm to the lower mainland and U S northwest.
In the U S northeast, we've put Middlesex and Appalachia to market into service, but again as you. All know this region needs a lot more capacity to address reliability and rising energy costs.
We're advancing our multiyear modernization program, so that will lower emissions and ensure the integrity of our system for years to come.
But theres more opportunity beyond that.
Our new partnership with Vanguard renewables will develop R&D projects along our system.
We're starting with eight projects, where we'll provide the injection and transportation assets and that should total around $100 million of capital.
Onto our gas utility in Ontario.
First this system is not only critical to the heating market, but meeting peak generation demand.
In fact, the Isos recent study and I encourage everybody to have a look at this makes it clear that natural gas is essential to Ontario's energy needs today and in the future.
Our franchise also benefits from continued population growth mostly from immigration.
We're on track for another 45000 customers there this year.
Importantly, Ontario is also approved 27, new community expansions and we're planning to sanction new capital for those shortly.
Overall, we're executing on $3 billion of utility capital through 2023, so great visibility there to rate base growth.
There is also lower carbon potential.
We're developing a sound portfolio of R&D and hydrogen opportunities on R&D, we've got three in operation and four in construction.
And through the Walker Com core JV, we're developing another 15 projects across Canada with more potentially in the hopper.
On hydrogen are green power facility was completed a couple of years ago and that proved out the technology and gave us great experience.
This quarter, we expanded that facility and put into service the blend hydrogen project and that will move into our distribution network.
The prize here of course is to make that happen across the franchise.
Finally to our renewables business and an update on European offshore wind.
As you recall, we've got three projects in operation and now three in construction in several opportunities in development Matthew went through that at Enbridge day.
Offshore France, we've installed 35 foundations at Saint Nazaire and another 45 planned through mid 'twenty. Two so we're on track for in service there late next year.
Later in the schedule that fee comp we're building the foundations, there right now and ill collaterals, where manufacturing substation components and sub sea cable.
These projects will add one four gigawatts of capacity with in service dates through 2024.
As far as development, we've got another three gigawatts at various stages. So we have good runway here as well.
In North America, we're accelerating our inside defense solar cells power.
We've put three facilities into service on our liquids and gas pipelines and as you can see here you get a feel for the proximity to our pipelines.
We have now started construction on four new projects on the Lakehead and Flanagan systems.
This phase will be in service next year and will lower our emissions and generate good returns.
These projects compete for capital straight up with the rest of our business.
Our existing behind the fence land large power load and renewable capability really give us an advantage in this space.
And Theres a lot of runway to grow at the compressors in pump stations that you see noted on the map here so stay tuned for more.
All of this is a great example of how we're using our skills that we developed in renewables over the last couple of decades to the rest of our business today.
Last point is part of our new energies business, we've established a dedicated team to coordinate the strategy and allocate capital to the best opportunities.
An important element of low carbon strategy and our view is partnerships.
Give us access to technology complementary assets and skills. We now have amassed four partnerships, which includes a recent one with shell where will collaborate on a range of north American opportunities.
And with that let me pass it to <unk> to go through the financial results and the priorities there.
Thanks Al and good morning, everyone as Al mentioned earlier in my 28 years at Enbridge has given me a great view of the business as a whole and I look forward to leveraging this experience to my new role as CFO.
My focus will be sustaining our track record of disciplined investment and value creation. So don't expect to see any big changes for me.
Today I'll start off my remarks, with an update on our key financial strategies are.
Our balance sheet and financial flexibility, we're in really good shape, where triple B high across the board.
We have bolstered our balance sheet capacity by continuing to recycle capital at attractive valuations. Another one 2 billion this year.
And increased our EBITDA through organic growth and continued cost reductions.
This EBITDA growth provides even more financial flexibility.
The resiliency of our cash flows is very strong providing highly predictable cash flows year after year.
This solid base along with execution on our capital program has us on track to deliver 2021 results within our EBITDA and DCF guidance ranges.
And the capital we placed into service this year will drive a lot of free cash flow growth in 2022 and beyond.
We expect to have $5 billion to $6 billion of annual investment capacity, beginning in 2022, which will be deploying in a disciplined manner I'll come back to this later.
So our foundation is very strong in Q3 was another solid enbridge light quarter.
All of our four key financial metrics are up year over year on strong performance across our businesses and continued cost containment.
Adjusted EBITDA and DCF are up about 10% to $3 3 billion and $2 3 billion respectively.
EPS is up over 20%.
Mainline volumes were about $2 7 million barrels per day in Q3, reflecting strong demand for heavy crude in pad two and pad three which was in line with our expectations.
<unk> utilization has been great and for the full year, we're seeing the benefits of our rate cases kicking in.
The utility continues to be strong its cash flows provide stability and it's throwing off a lot of growth.
Finally, our renewables business is performing in line with what we've been expecting.
This strong operating performance across all of our core businesses has however been partially offset by continued weakness in energy services and the effect of a weaker U S dollar on unhedged revenues.
In energy services steep backwardation and historic historically narrow geographical basis has limited our ability to take advantage of pipeline and storage contracts.
FX has been a modest headwind to our operating results. Although we are substantially hedged. This shows up as an add back in our in eliminations and other segment.
In terms of DCF maintenance capital was a little lighter than planned.
With three quarters of good results in the books, we are well on track to achieve our full year guidance.
Let's turn to EBITDA.
We anticipate strong asset utilization again in Q4 with line three fully in service on October one we're expecting fourth quarter EBITDA contributions in line with our guidance of roughly $200 million and the mainline we expect it to average just around two.
95 million barrels per day.
The motor acquisition closed this month and it will be a modest tailwind in Q4 with the terminals contracted volumes ramping up over the next 12 months.
On balance we are anticipating <unk> and headwinds to be roughly balanced for the rest of the year energy services.
Is expected to remain weak through 2021, we saw some warmer weather in October in Ontario, which will negatively impact our utility outlook.
And a weaker U S dollar will weigh on our operating results net of our hedges.
Onto DCF, we expect lower interest expense on a weaker U S dollar.
Timing related delays to utility and maintenance capital and cash savings from higher higher U S tax pool utilization roughly in line with 100, the $100 million, we outlined in Q2.
As we move towards year end, our focus will shift to 2022.
And here's a few factors that will contribute to our forecast, which will provide a much more fulsome review at on our Enbridge day call.
First the $10 billion of capital that we put into service in 2021 will drive higher EBITDA and cash flows.
Ingalls Ingalls sides volumes will ramp up in 2022 growing its EBITDA contribution.
And we're expecting strong utilization across all of our systems, including the mainline Ori, we expect 'twenty to 2022 volumes to trend to our Q4 outlook.
The gas pipeline and utility businesses are expected to remain remained nicely utilized in capture rate increases.
Our renewable projects will remain largely in construction through most of 2022 with St nature, there coming into service in the last quarter.
And in energy services, we expect losses to moderate in 2022, but we still anticipate a slightly negative contribution next year.
Out of the money contracts will begin to roll off late in 2022 and early in 2023.
So that will bring us back to a more normal positive run rate.
And finally relative to our 2021 plan, we expect FX to remain a headwind in 2022.
As usual or rollout our formal guidance for 2022 in December.
Yeah.
The outlook for our balance sheet is similarly strong.
We've just now completed our 2021 financing plan, including $2 4 billion of sustainably linked bonds at historically attractive interest rates.
Despite the full spending associated with line three and the Moda acquisition.
With only partial year EBITDA contribution or year end credit metric is expected to remain within our four five to 5.0 policy range. So thats a good outcome.
So with a full year of contribution in 'twenty 292 from this capital and the Novercal sale proceeds will drive debt to EBITDA down to the low end of our.
Credit metric range in 2022.
That's going to provide a lot of financial flexibility and continues to support our triple B high credit rating.
I'm sure you're wondering about inflation, so let me spend a minute on how we're thinking about it Rick.
Recall, roughly 80% of our EBITDA has toll escalators or regulatory mechanisms that protect us and if we continue our cost management track record. This could actually provide a small tailwind for us.
Our strategy to procure materials and equipment early so far shielded us from any significant inflationary impacts to date.
So let's shift to how we will deploy our investment capacity.
<unk>.
In 2022, we anticipate 5% to $6 billion of annual investment capacity.
And we will be disciplined in terms on how we invest this to maximize shareholder value.
We will provide more detail at Enbridge day, but our big picture priorities have not changed.
Protecting our balance sheet remains our first priority and we will assure we will have plenty of financial flexibility and buffer.
That includes continuing to evaluate opportunities for further capital recycling, where it makes sense.
We expect to grow the dividend Ratably.
Up to the level of medium turn DCF growth with an eye to migrating to our payout to about the mid point of our 60% 70%.
Payout range.
Our base businesses will continue to kick out.
$3 billion to $4 billion of organic growth opportunities per year with attractive returns that is growth in the utility gas pipeline moderate modernization and low capital liquids pipelines expansions.
The next 2 billion will go to the next best alternative and we will assess share buybacks, adding more organic growth asset M&A and further deleveraging.
As we have said before share buybacks have risen in the order of priority and we continue to believe with the predictability of our cash flows are ratable growth or asset <unk>.
And our asset longevity, we are currently undervalued at our current share price.
I am excited that we have this financial strength in.
Flexibility to optimize our capital allocation and shareholder returns.
So finally to wrap up our annual Enbridge day will be on December 7th this year.
As usual, we'll use this event to update you on our financial outlook and our strategic priorities.
We're planning for the event to be in person and in Toronto. So we look forward to seeing you there.
Of course, we will have a webcast too for those wanting to attend virtually.
So with that I'll turn it back to al.
Okay. Thanks Vern.
Just a couple of takeaways here 2021, as you heard is a pivotal year for us the business is performing well and is generating highly predictable results.
We're executing on the priorities that we laid out at the last Enbridge day, and we're on track to put in $10 billion of capital into service. This year that will generate a lot of cash flow as you just heard.
So with that let me hand, it back to the operator for Q&A, we are not yet all in the same room here, so I'll direct questions as needed so back to the operator.
Thank you we will now begin the question and answer session. If you have a question. Please press star on your Touchtone phone.
Again, Thats star one on your Touchtone phone, if you wish to be removed from the queue. Please press the pound or.
<unk> key.
You are using a speakerphone you may need pickup the handset before pressing the numbers. Once again, if you have a question. Please press star one on your Touchtone phone.
And your first question comes from the line of Robert Kwan with RBC capital markets.
Great Good morning.
I wanted to dig into the comments you made to start around capital allocation and specifically that $2 billion bucket.
You had some comments just around share buybacks and you see our shares as being undervalued I'm just wondering whether you.
Similar to what you did about a year ago be willing to rank quarter.
Those options and as it relates to dividend growth I think Brian you mentioned up to.
The growth the underlying growth.
I don't know if you can just kind of frame that comment in light of what your friends across the street that this morning.
Okay Robert.
I think on the capital allocation.
It's really great that we have the capacity to look at all of these different options, obviously, what when we make these decisions.
There is a number of pros and cons each of them on the share buyback front.
It's great that we can invest and enbridge.
<unk>.
As the company continues to grow its tcf and its cash flows.
Share buyback lowers our payout it provides dividend savings and obviously its executable, but some of the cons are that it doesn't provide any further organic growth doesn't add incremental EBIT.
And doesn't help us with our long term long and medium term cash.
Horizon so.
I think what we'd like to do is.
Look at that in concert with all of the other opportunities that we have.
And as we work through 2000, 2022 and beyond we will make sure that we make the best decision for our shareholders.
If we turn to the dividend obviously dividend growth is a key component of our value proposition. We continue we plan to continue to grow it.
But we have some other competing priorities as well.
And then <unk>.
Near to medium term, we'd like to get back to the middle.
Middle part of our policy range and at this present time, we don't believe the market's fully valuing the level of the dividend that we provide today. So hopefully that provides some clarity for your question there.
Yes, that's great.
And if I can just finish with a question on the oil pipeline side without <unk> are done.
You've talked in the past about other oil pipeline expansions.
Just wondering if theres any update on those now that El <unk> service and are any of these projects.
Eminent, but waiting and being held back pending clarity on the mainline contracting situation.
So I think we will get calling to respond to that Robert.
Hey, Robert.
Yes, we're excited that.
Obviously the line three is.
And service and immediately being being useful.
And while utilized and.
We do have a.
Abiding order of.
Of expansions.
Cost effective ones by the way lined up as we've talked about for some time.
Our system is vast.
It is complex and it continually provides.
Creative solutions that we can we can harness as we have through the last number of years.
These range from our drag reducing agents.
Horsepower on existing.
Pipes.
Potentially some reversals or even repurposing. So the same roster I would say that you are.
<unk> familiar with is is being teed up here.
It'll be dependent on customer interest and.
I think in part.
Industries.
Emerging.
We need to sustain some excess egress.
And multiple options to market I think that that's a key.
That's been.
Absent for a couple of decades.
We will do our best to fill that need so.
We'll talk more about this at Enbridge day, that's what that day is designed for but we are excited about the prospects here.
That's great. Thank you very much.
Thank you.
And we also have Jeremy Tonet with J P. Morgan online with a question.
Hi, good morning.
No.
I just wanted to start off with the Ingleside acquisition. There I know, it's a very recent since you guys closed, but just didn't know if you could provide any kind of updated thoughts as far as that.
Now that you have it how is it executing versus your expectations and I guess more specifically when we think about the crude oil export side.
We've seen kind of trends shifting there, but given where the.
Differentials are so I'm wondering if you could provide any more thoughts I guess on how you see those trending in the near term.
Yes, sure Hey, Jeremy Yes, so.
Pretty excited about this.
The market for the Permian barrel is increasingly global as you know, it's large and growing and it's going to play a long term role in.
In energy export in energy transition.
We closed the transaction a few weeks ago now, but I'd say, our Q4 outlook in R. 22 outlook is quite encouraging.
We're seeing.
Export loadings, ratably wrapping up quite nicely and in line with with upstream drilling rig count trajectory. So that's good.
And I'd say, it's also very consistent with our purchase economics.
We have <unk>.
Multiple commercial expansion offerings in flight to leverage.
The operating leverage that Alan talked about in the fixed cost prebuilt.
Facility that's fair.
Some of these offerings are a continuation of commercial offerings that the prior management team and owner had in.
In flight and some additional ones on our own we're looking at multiple types of products.
To export and we've had some good inbound interest I would say here right off right off the bat.
So.
I think it's looking generally pretty positive here, Jeremy maybe just add Jeremy one point.
To that.
Really in terms of your part of your question around differentials and where they ebb and flow.
We look at this this one is this is highly contracted facility. So the way the economics work in our in our model as we've got that base.
And then we sort of.
Look at it as upside if the differentials pointed our way and the producers way and so really.
Good upside here to global dynamics, which you know are likely going to look for more low cost reliable light crude from from North America. So that's just.
We look at it in the bigger picture.
Got it.
Helpful. There and then maybe just wanted to pivot to I guess energy transition side a little bit.
R&D it seems like a quite active in the Canadian side, just wondering on the U S side, if you see opportunities there or how much capital could be deployed in general.
Well Bill is probably closest to the U S side, given the new opportunity there with Vanguard. So maybe bill why don't you take that yes.
Yes, Jeremy I think the Vanguard renewables partnership that we.
Announced us as a really good step.
We have line of sight to.
$100 million worth of worth of projects in the near term. So it's kind of a good place to dip our toe in the water in the model, but we're setting up really.
It really gives us line of sight to even more so like I said told on the water really really good stuff there I think.
In addition to that partnership though.
We've really got to think about our long standing relationship with all of the.
LDC customers, so all of our utilities that.
You know are somewhat active in this space and.
The relationship there could could extend from partnerships to do do some R&D projects together.
To just simply.
We do a project and then had a resale too to them as they as we both to strive to meet our our emissions targets.
I think it's Scott.
A lot of potential I mean, how much is yet to be seen it's pretty amazing when some place like the AGM comes out with.
<unk>, saying Wow R&D could meet half the heating load.
Over the next I forget the timeline 10 or 20 years, that's pretty impressive.
Got it.
Thanks for that I'll leave it there.
Great. Thanks, Jeremy.
And your next question comes from the line of Ben Pham with BMO. Please go ahead.
Good morning, I wanted to stay on energy transition and I'm wondering when you look at.
Okay.
Transition of opportunities and you put them through your filter you look at the risk reward is there.
But would there be any significant difference in how you look at those investments versus your existing portfolio is different returns different risk profiles different counterparties, but we won't comment on that.
Okay.
<unk>.
So I would say.
It's exactly the same as we look at the rest of our business.
As Varian referred to will continue to be very disciplined as we're putting capital to work in the future. So maybe the way to think about this at a high level is if you look at what we have.
In flight right now if you look at wind solar.
Some initial R&D.
And hydrogen investments they are pretty much right in line with.
The business model that youre used to seeing from us.
And in the case of hydrogen for example, with the two projects that we're working on in Ontario, and then a third one in Quebec there'll be incubated if you want to look at it that way.
In.
The existing commercial model, where we're assured a return on and return of capital.
So I think.
That's the way we're looking at it we've probably got $2 billion in flight now in terms of energy transition category.
And I would say that over the next five years, you're probably looking at that same level of call. It $1 billion a year I think what's to be determined though longer term is how fast hydrogen and other areas like <unk> develop so I think for.
The next five years, we don't see massive amounts of capital being deployed there other than these core areas that we're working on right now so hopefully that provides some context.
Can I make just a quick add on.
The other thing that we're doing is when we look at our traditional investments now we do at the price of carbon to each of those investments and we also increased the hurdle rates slightly because of.
The energy transition risk on some of those opportunities so with with these energy transition assets, obviously, those adders arent applied.
Yes, and again and again I think you've seen the chart we use for this Ben.
The whole game here for us is to really utilize the existing assets too.
To leverage those assets into low carbon opportunities. So you see it in the utility you see it in Bill's business.
And you see it with solar self power, which links right up to our conventional business.
Okay, Great and then.
My second question mainline CR decision around the corner.
Do you expect to see our CER decision that effectively.
Yes, and no is you've applied applications boundaries.
<unk>, where they can.
Give you a blanket approval subject to.
Conditions on contract levels.
And tolls.
Colin.
Hey, Ben.
We're waiting for this imminently right.
<unk>.
And it's it's unclear.
Yeah.
Precisely the form of the decision.
That will come.
I think they have an array of.
Of choices here, but.
Obviously, we strongly.
Believing the one we filed four with with a variety of benefits. We included in it that were as you recall requested by by industry.
We'll look forward to that.
And I would say.
If the decision is acceptable and I would emphasize this next door at in its totality.
Right.
We will proceed to the next stage, which would be commercial contracting and then.
<unk> by mid 'twenty two.
If it's not acceptable again in its totality.
From a risk reward perspective for our capital providers, we could re file for something else that would be.
And I think we've laid out some options there.
The last couple of years, so I will have to wait and see Ben.
Okay.
Yeah.
And just Newark, Giussani with UBS is online with a question.
Hey, everyone.
I was just looking at slide 23.
With plenty of present, the outlook and the preliminary 22 outlook. Although there is no number I did tried with my ruler to figure it out but.
I guess my question here is is that you sort of highlighted the in terms of the positive benefits of negative benefits. Obviously the dollar in energy services. It has headwinds, but you're sort of included mode.
As well as the benefit of the 'twenty one growth Capex I was wondering if you can sort of talk about.
Any other tailwind that you're seeing.
In your prepared remarks, you talked about.
Kind of the energy crisis, that's going on right now.
Are there any inflation escalators tied to PPI and CPI that could potentially benefit enbridge.
Just kind of curious what other tailwind that we should be thinking about where you could see some operating leverage within the existing system launches with respect to the growth capex coming on line.
Well, maybe I'll just.
Try to go through this quickly.
First of all on your question around inflation I think as Vern mentioned, there's a very large majority of our EBITDA and revenue that's driven.
By indexing of some sort.
That's off of inflation, so that's a plus.
I think in terms of the commodity.
Part of your question.
As you know we're not.
Hugely driven by commodity prices, given our business model, but there are a couple of things.
Around the Ngls that we have for example at ox Sable.
Maybe there's a little bit of a tailwind with some excess capacity we might have in market gas.
To capitalize on that I would say.
And a big part of what we've been focused on in last two three years those scenarios.
Cost management and that's.
Thats not to be underestimated, especially since every dollar you save.
Certainly very helpful from a balance sheet perspective, and so those are the general categories of tailwind beside the bigger ones that Vern mentioned.
Okay great.
So just to clarify before I ask my second question there isn't like line three is bringing more volumes in part of your assets elsewhere, we will see benefits as well to you or.
I'm, sorry could you just clarify that sure.
It's just the fact that late line three replacement is now in service that there would be more volumes flowing through that there could be more operating leverage elsewhere in the system.
Yes, I think we're probably going to be pretty much at capacity.
That's the way we've modeled it out so far with line three now in service I think the benefits there may be some marginal benefits with additional volumes here and they're probably not huge.
The big upside, though of course is now that we have it in places as was mentioned.
There'll be some downstream expansion possibility there that looks pretty good and remember those are going to be very low capital intense opportunities. So right down the fairway for us at this part of the cycle. So we will do well in those.
That makes perfect sense and for the second question just to go back to the acquisition of Moda.
Kind of wanted to understand your broader strategy with respect to exports.
You acquired mode does it change your view on spot.
It's part of a larger strategy just given the slide that you would put out.
Are you looking to add more connectivity to corpus now with respect to having that in place.
Would you be expanding that export strategy to include LNG potentially as well so.
Mhm.
Well, maybe I'll start it off.
Then we'll go to Colin.
So this part of the strategy was really all about the second leg commodity wise. So as you know we were the first ones to build that path on the heavy bear.
Barrels into the Gulf coast over the last several years. This was really about now covering the light oil side and we're so happy about this because of the.
The sheer competitiveness of the Permian and Eagle Ford on global market scale.
And so with with motor being the lowest cost.
Infrastructure to market.
We really think we're an ideal position here to capitalize on the upside that we think will come from exports.
Talked about LNG I actually I see this as an equally powerful strategy.
There were located on the golf and how were hooked up to existing LNG and importantly, I talked about $2 billion of.
LNG projects in development, we are lining up really well with new <unk>.
Projects potentially in the next little while where we will have captured.
The pipeline capacity that feeds those LNG plants. So that's a real big picture and how we're thinking about exports.
Call it any more to add on moda.
Yeah, sure and I think.
I think you're back to slides 10, and 13, where we're developing out gradually and I'd say in a disciplined matter.
Export maps in both crude oil and.
And LNG.
And they're really coming into focus.
On crude in particular, you can see on slide 10, we've got.
A number of diverse.
Roster here in multiple points across the Gulf.
And that fits the strategy I was talking about.
So so primarily of light.
The focus at Corpus yes.
Yes, we're still interested in spot that would be a lie.
<unk> more medium heavy.
Export market and would feed off R.
Our seaway path and all the way from from Canada.
Potentially down the road, we could connect.
Seaway over to corpus.
So that you can get a sense of what we're trying to build out here.
Does that help.
No perfect that was.
Very thorough answer I really appreciate the color.
Thanks, a lot and have a great weekend.
Okay Shneur. Thanks.
Yes.
Robert <unk> with CIBC capital markets is online with a question.
Hi, Good morning, you referred a little bit to inflation earlier in your comments and as you are no doubt aware some industrial users have been calling for.
A reduction in LNG exports in order to help mitigate the impact on price.
So obviously, that's a reactionary.
<unk>.
Comment, but I'm wondering if that.
The current inflation environment, we've had any change in.
Any impact on how you look at the LNG fundamentals over the longer term.
Bill do you want to comment on what you are hearing on the ground on that one.
Yes, yes.
Rob not more not hearing Matt to be honest I mean this is.
Okay.
I can only say suddenly we're in the markets. We're in the market that we'd hoped for.
I think I.
We've seen a number of off take contracts signed.
Can think of five very recent ones.
Many of them are those projects.
We've got our eyes on that help us build out our infrastructure and we think theres more to come so I could get into a much longer answer, but the short answer is I.
I don't see the momentum stopping right now.
Okay. Thank you.
Okay Rob.
Rob Hope with Scotia Bank is online with a question.
Good morning, everyone I wanted to delve into the mainline volume in 2022 outlook.
Maybe what are the puts and takes as we enter into 2020 to like as I understand heavy still under apportionment theres a bit of a ramp and in line three there as well so is it just seasonality with some.
Outages in the back half of the year and I guess secondly, if you've got a favorable mainline ruling could we see maybe some DRA expansions, providing some upside here.
Hey, Rob, it's calling yes so.
We will provide some more.
Color on this.
At Enbridge day for sure and give you a sense of seasonality as well.
It is an average I think and I think Vern mentioned.
Looking at next year in the same neighborhood of $2 95 million barrels per day, that's an average there is seasonality of that.
A bunch of factors.
It's largely full so.
There may be some operating leverage here and there but that's.
That's the gist of it.
Yes, you mentioned a portion that we've we've come down nicely I think we were in the 40% to 50% apportionment range and now we're down kind of.
10 ish, and we'll see where that goes in in December.
I think.
All market participants are adjusting to.
The new dynamic with the step change and line three.
Capacity and.
And.
And cap line as well as coming into service.
January one is line feeling right now and by the way that should be.
A positive.
Pull through our system and the various.
Pipes like Saks in Mustang as well so.
I think we feel pretty good about that $2 95 area all kind of blur.
Specificity of it for now but.
Generally full I think is how you should think about it and I think Colin to his question around DRA opportunity I think in terms of how we're looking at the outlook for 'twenty. Two at this point, we haven't contemplated any of that in additional DRA at this point, but correct me if I'm wrong no. That's good clarification, yes that probably.
Richard's back to Robert's question at the beginning so we would think about that is as.
Further tranche of growth down the road.
Alright, that's helpful. And then just circling back to your comments on the mainline re contracting initiatives have been taking a look at the decision in its totality.
A lot has changed through the year.
Okay.
Years that this has been going on.
With the demise of Keystone XL has the and maintenance contracts and the assistant.
Okay I'm down in priority for you, whereas the total.
Level has increased or kind of maybe puts and takes on how you're thinking about that decision.
Yes, again back to totality of that Youre right. There are things that have changed probably some favorable some unfavorable.
It remains.
Industries General <unk>.
Preference to contract aligned for all the reasons.
Toll certainty.
That's been our historical tenants of all our arrangements for the last 25 years.
Access to capacity falling 20 years of egress deficit.
And the toll we're looking at here is as a reminder, it's basically an extension of the of the toll on at the exit of our expiry here and with toll discounts, it's actually lower for many.
So I think we would also.
No preferred to contract the line.
Theyre all our vulnerabilities.
And the planning horizon as Trans Mountain comes on so.
Again, the totality concept applies to that balance of risk reward we're trying to.
Trying to optimize so again, we're going to have to.
Carefully review of the decision.
And.
Like I said if it works. We'll proceed if not we'll walk we will refile.
<unk> something else either a fixed tariff tolling arrangement like the ones, we've had for 25 years or.
Or a cost of service arrangement, where.
Cash flows are protected and I was just going to mention on that last point collyn.
For the other way to look at this is what the shippers are actually.
Not very excited about which we've heard very clearly from them that cost of service is something they've not prefer.
And there is issues with.
The commercial structure with an exist the existing type of arrangement. So I think it's almost when you triangulate what they've really pushed for which is contracting we still think thats.
The best outcome for them and for Us and it's been driven home for as Colin said.
A long time in discussion with industry.
Thank you.
Okay.
This concludes the question and answer session I will now turn the call over to Jonathan Morgan for final remarks.
Okay, great. Thank you. Thank you everyone for joining us this morning as always we appreciate your ongoing interest in Enbridge.
Our Investor Relations team will be available following the call to address any follow up questions you may have.
Once again, thank you and have a great weekend.
And thank you.
This.
Today's conference.
Thank you for your participation you I appreciate it.
You may now disconnect.
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We have reached our time limit and are not able to take any further questions. At this time I will now turn the call over to Jonathan Morgan for final remarks.
Thank you ladies and gentlemen, we appreciate your participation. This concludes today's conference you may now disconnect.