Infrastructure players remain bright spot in energy sector
Enbridge, TransCanada invest in capacity as focus shifts from West Coast projects
Absent from second-quarter earnings calls for both TransCanada Corp. and Enbridge Inc. this week was the drama of recent years brought on by regulatory and government uncertainty surrounding approvals of major pipeline projects.
At Enbridge a year ago, the fate of Northern Gateway was still unknown as the federal cabinet had yet to decide — officially, anyway — whether it would approve the project.
And few observers then, TransCanada included, would have thought the company would now be talking about an open season to solicit additional commitments for its Keystone XL project, as happened last week.
The pipeline received a presidential permit in March and, in addition to the open season being successful, TransCanada must await a decision on a section of KXL that runs through Nebraska. That’s expected to come by November.
The earnings presentations and ensuing discussions — apart from the hard financial results — were mostly focused on what investors want to hear: positive news on the integration of acquisitions made by the two companies in 2016; capital spending plans; progress on current projects and the growth opportunities ahead.
TransCanada’s earnings release came days after Petronas announced it would abandon the Pacific NorthWest LNG project, for which it was slated to build the $5-billion gas transmission Prince Rupert facility that would service the liquefied natural gas project.
TransCanada was also awarded the mandate for the $4.8-billion Coastal GasLink designed to serve LNG Canada’s terminal, although Shell has indefinitely delayed its approval of that project.
What was clear from TransCanada CEO Russ Girling is that the company remains committed to shipping natural gas out of Western Canada.
It’s his view that production from the Montney and Duvernay can compete with U.S. production, which means more natural gas should flow south into American markets.
That’s in addition to being able to send more natural gas on the mainline into Eastern Canada, which would compete against the production being shipped from the Marcellus and Utica.
To that end, TransCanada announced a $160-million investment to expand capacity by 80 million cubic feet per day on the mainline in southern Ontario. It had previously committed $2 billion in Alberta and B.C. to increase shipping capacity out of that market.
“That doesn’t mean we’re not going to continue to look at trying to get to the West Coast, but I think everybody realizes that’s a difficult and longer-term prospect, and in the shorter run we’re focused on Pacific Northwest, California moving gas East and South out of the Western Sedimentary Basin,” said Girling.
With one LNG project in British Columbia officially cancelled and others still on ice, it’s fairly clear TransCanada and Enbridge see the U.S. as the outlet to fulfil Canada’s natural gas offshore export ambitions until a project of size is sanctioned.
Certainly, if other companies follow the example of Seven Generations Energy, which has committed to sending a portion of its natural gas south to Cheniere’s LNG export terminal in Louisiana, more transportation options will be needed.
A good portion of the Enbridge call was devoted to its Line 3 project, which received federal government approval late last year and is awaiting permitting south of the border. Company president Al Monaco characterized the project as important not only to the company but the Canadian economy. It’s still on track to be in service by the second half of 2019.
Monaco also said U.S. refiners like the “diet” of crude Enbridge is shipping and that the company is well-positioned with ‘take-orpay’ contracts, which will ensure the impact of other projects being built and put in service is minimized.
As a company whose roots are firmly in the natural gas transportation business, it’s no surprise TransCanada management is optimistic about the future of natural gas, even in the current commodity price environment.
Monaco said Enbridge looks forward to leveraging the organic growth opportunities that came with its acquisition of Spectra Energy Corp. — the deal closed in February — and being more integrated in the North American natural gas system.
But here is where it all hits home: The two companies reported a combined net income of $1.8 billion and cash flows of $3.3 billion. They have raised money in the past 12 months, divested assets into a robust market for anything in the midstream sector and repositioned themselves for growth despite setbacks, regulatory or otherwise.
It’s not like the energy sector has a lot of optimism these days. A number of exploration and production companies have recently announced cuts to capital expenditure budgets, but the midstream, energy infrastructure players remain the bright spot, for the industry and investors.
Even better, Calgary boasts two of the largest energy infrastructure players on the continent, which are setting the pace, not running to catch up.