The energy market is in the midst of a major transition. The global economy is shifting its primary power source, moving away from fossil fuels toward renewable energy. It's a massive undertaking that will take decades and trillions of dollars in new investment.
Because of that long time horizon, the industry isn't going to abandon the current infrastructure supporting fossil fuels anytime soon. Instead, it could become more valuable in the interim as investment shifts while potentially playing a prominent role in supporting the fuels of the future. That leads Canadian energy infrastructure giants Enbridge (NYSE:ENB) and TC Energy (NYSE:TRP) to believe that they can continue generating lots of cash and paying high dividend yields (both currently yield more than 5%) for decades to come.
The green enabler
Enbridge and TC Energy's CEOs believe that their companies can play a vital role in the energy transition. They see their existing infrastructure supporting the global economy during the interim phase by continuing to supply it with reliable energy. That's crucial because one of the drawbacks of renewable energy is intermittency since the sun isn't always shining and the wind doesn't always blow. While energy storage will eventually help bridge that gap, it's not widely available because of higher costs.
Enbridge CEO Al Monaco called out the importance of natural gas in the energy transition. At a recent virtual energy conference, he stated that gas is a "great enabler" for renewable energy because it's a reliable source of cleaner power that can backstop renewables. He noted that it's "low-cost, abundant, it's important in reducing utilization of coal, but it's equally important in fostering renewables. You've got to be able to create baseload capability, and it addresses the enormous intermittency challenges."
That outlook leads TC Energy CEO Francois Poirier, who spoke at that same conference, to believe that "natural gas and liquids will continue to play a prominent role in the energy economy for decades to come." He believes that the industry's existing infrastructure will remain "useful for quite a long time and generate a tremendous amount of cash flow that we will be able to deploy into the energy transition." In addition to deploying cash to support the energy transition, TC Energy and other energy infrastructure companies should be able to keep paying attractive dividends.
Valuable assets both now and in the future
Enbridge and TC Energy believe that their existing infrastructure is becoming increasingly valuable because of the energy transition. On one hand, it's getting harder to build new pipelines because of increasing pushback from environmentalists and governments. It's also proving to be challenging to utilize existing infrastructure. Enbridge has struggled to complete its Line 3 replacement project for years while also facing a potential shutdown of its Line 5 pipeline. Given these obstacles, Enbridge believes that existing pipeline values will rise since the industry won't build many more new ones in the future even as energy demand keeps growing.
Meanwhile, Enbridge and TC Energy see their existing infrastructure playing a vital role in transporting and storing the fuels of the future. Both companies believe they can repurpose a large portion of their existing assets to help transport and store low-carbon fuels in the future.
Enbridge is already working on several low carbon projects. It operates two renewable natural gas plants in Ontario and has more in the works. It also operates North America's first utility-scale power-to-gas facility that produces hydrogen and has a pilot project under way to blend hydrogen with natural gas to utilize in its transmission and distribution systems. Finally, it's evaluating potential ways to leverage its liquids pipeline and storage capabilities for carbon capture and storage. Enbridge is also investing in renewable energy projects, including several offshore wind farms in Europe.
TC Energy sees several ways it can leverage its existing assets to support the energy transition. It sees opportunities to expand its gas network to support the increased usage of cleaner natural gas in the near term. Meanwhile, in the medium term, it can support coal-to-gas switching in the Alberta power sector and increase the availability of LNG exports on both Canadian coasts. Finally, longer term, TC Energy sees opportunities to convert existing natural gas compression to electric compression and the potential to transport alternative fuels like natural gas and hydrogen across its existing network. The company is also investing billions of dollars in extending the life of its emissions-free nuclear power plant in Ontario.
The power to keep paying dividends
Enbridge and TC Energy believe that their integrated North American infrastructure systems will remain essential in fueling the global economy. These see their existing infrastructure becoming increasingly more valuable because of the challenges of building new assets to support fossil fuel transportation and storage. On top of that, they believe they can eventually repurpose a large portion of those assets to transport and store the fuels of the future, giving them a second life. That should enable them to continue generating a gusher of cash flow. That would give them the funds to expand their operations to provide adjacent services such as producing, transporting, and storing renewable energy and low-carbon fuels and pay attractive dividends.