Enbridge to spend $1B for expansion in B.C. natural gas
CALGARY Enbridge Inc. announced plans Thursday for a $1 billion expansion of its British Columbia natural gas pipeline system, as a result of booming domestic natural gas production.
Enbridge president and CEO Al Monaco said on an earnings call the company has launched an open season, seeking commitments from natural gas producers to ship more gas from the prolific Montney formation in Alberta and B.C. to the Vancouver area, on a system it acquired as part of its massive deal to buy Spectra Energy Inc. in February.
Monaco said surging natural gas production from the Montney has surprised and impressed his company, which wants to move more of the commodity. “That’s probably something that’s going to provide more opportunities than we initially thought,” Monaco said.
The project would add compressor stations to an existing gas pipeline boosting its capacity by 190 million cubic feet per day and delivering the extra gas by the end of 2020.
Solomon Associates director of gas services Cameron Gingrich said the Enbridge proposal “will help alleviate some of the congestion” that gas producers face in northeastern B.C., where production volumes have increased.
In recent months, several Calgary-based pipeline companies have made pitches to move more gas from Western Canada in all directions. TransCanada Corp. held an open season to send more gas eastward to Ontario and Alliance Pipeline, partly owned by Enbridge, is looking to expand capacity on its southeast-bound line to Chicago.
Gingrich said producers “need more options for getting that gas to market” and Enbridge’s westbound proposal would provide another option.
Enbridge’s gas pipeline business was one bright spot as the company reported first-quarter earnings on Thursday. BMO Capital Markets analyst Ben Pham said in a research note the company’s earnings from gas pipelines was well above the bank’s estimates, while its earnings from oil and liquids pipelines were below estimates.
The company earned $638 million in the first quarter of the year — down 47 per cent compared with the same period last year.
Pham said the company’s earnings miss was also partly the result of higher corporate costs, including IT service costs, after the company closed its $37-billion Spectra deal in February.
CIBC World Markets analyst Robert Catellier said in a note that Spectra contributed to better cash flows for the company, which “is consistent with our thesis that the combination of Enbridge and Spectra should have a significant cash generation profile.”
The company’s shares slid 2.07 per cent, or $1.16, to close at $54.77 on Thursday following the earnings release.
Monaco said the company would be able to reduce its costs following the Spectra deal closing.
Enbridge, now the largest pipeline company in North America, also closed its acquisition of a roughly 27 per cent interest in the Dakota Access Pipeline and other pipelines in North Dakota in February.
Those pipelines are expected to begin shipping crude from the state’s Bakken light oil play later this year.
(The increased cash flow from Spectra) is consistent with our thesis that the combination of Enbridge and Spectra should have a significant cash generation profile.