Enbridge doubles down on Gulf Coast in big bet on oil and gas demand

Greg Ebel, who took over as chief executive of Canadian pipeline giant Enbridge Inc. in January, wasted little time putting his own stamp on the company.

At a time when governments are spending hundreds of billions of dollars to turbocharge the transition to renewable energy, Ebel this week bet there will still be enough export demand for North American crude oil and gas over the next decade to justify large new investments in U.S. Gulf Coast infrastructure.

Ebel said global trends in population growth, urbanization and increased consumption, as well as the persistent need for fossil fuels in sectors like heavy transportation and petrochemicals where greener substitutions aren’t easily made, will continue to support demand for North American oil and gas.

“While we all would like to go to a lower carbon future, I don’t think there’s a scenario that exists, or at least not a happy scenario, where we don’t continue to use natural gas in the future,” Ebel said at a news conference at Enbridge’s annual investor day on March 1. “And liquids, look, it may ramp down over time, but that’s decades and decades to go.”

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It’s a view shared by many investors in the sector. “This is not a sunset industry,” said Ninepoint Partners senior portfolio manager Eric Nuttall in a recent interview with the Financial Post.

“The demand for oil will grow for at least the next 10 years. And after that, you and I will both be consuming oil for the rest of our lifetimes,” he told the Financial Post’s Larysa Harapyn.

Nuttall says the combination of growing demand after COVID lockdowns and supply constraints makes him “very, very bullish” about the outlook for oil and gas.

“We’re likely heading to triple-digit oil prices by the end of this year,” he said.

Building a ‘super system’

Calgary-based Enbridge has been on a spending spree aimed at bolstering its presence in the U.S. Gulf Coast, announcing this week that it will spend US$350 million to acquire 35 billion cubic feet in additional storage assets.

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Enbridge will also spend US$240 million to build a new heavy-oil terminal in Houston, at the terminus of its Seaway Pipeline system, which carries Canadian crude and other U.S. crude types to the Gulf Coast, creating a heavy Canadian crude hub in the Houston area. 

The larger goal is to create a “super system” to rival its longstanding heavy system in Canada. In service of its Gulf Coast ambitions, Enbridge purchased the continent’s largest oil export terminal, the Ingleside Energy Centre near Corpus Christi, Texas in 2021.

It isn’t full speed ahead for Enbridge. The company continues to evaluate whether the heavy and light oil terminal that it would like to build in the Houston area with Enterprise Product Partners LP actually makes sense. Nevertheless, the $3.3 billion in new spending that Enbridge announced this week — including improvements to its natural gas transmission system and utilities and investments in a renewable natural gas project and a new natural gas pipeline in Ontario — represent a statement of confidence in the oil and gas industry’s future.

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Ebel said Enbridge will continue to make large investments in renewables, hydrogen and carbon capture — but that those projects must be competitive and provide returns without increasing risk to the company.

“I think (we) continue to build infrastructure, (we) continue to be more efficient  — that lowers emissions, but it’s not counter to continuing to provide investment returns for investors,” Ebel said.

‘Responsibly produced energy’

Enbridge’s announcements come as investment in Canadian upstream growth is set to increase for a third consecutive year, with the Canadian Association of Petroleum Producers (CAPP) forecasting that the industry will invest $40 billion in 2023, an increase of 11 per cent from last year.

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However, CAPP said most of the increased spending will go towards maintenance and incremental growth projects and in managing inflationary pressures. For the most part, oil and gas producers have been eschewing investments in production growth in favour of shareholder returns.

Conventional oil and natural gas capital investment in 2023 is forecast at $25.8 billion, while oilsands investment is expected to reach $11.5 billion.

And when it comes to exporting the crude product resulting from that investment, this year will see the rise of an important rival to Enbridge’s Mainline pipeline system when the Trans Mountain pipeline expansion project wraps up late in 2023.

“The year 2023 may be one of the most pivotal moments in time for Canada’s oil and natural gas industry,” said CAPP president and CEO Lisa Baiton. “With an emerging liquefied natural gas export industry, the expected completion of the Trans Mountain pipeline expansion, and billions of dollars in emissions reduction investments waiting to be unlocked, Canada is positioned to play a much larger role in providing responsibly produced energy resources to the world.”

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