As a midstream company, Canada's Enbridge (ENB 0.17%) tends to grow its business via acquisitions and ground-up construction. While it's impossible to predict when the company will buy an asset, there is a very clear line of sight on the capital investment front. Here's a look at what Enbridge will be doing over the next five years.
Enbridge is one of the largest midstream companies in North America, with a market cap of around $80 billion. Its portfolio of assets spans from the Canadian oil sands down to the Gulf of Mexico. It owns a vast array of vital infrastructure, including oil pipelines, natural gas pipelines, energy storage and transportation assets, a regulated utility, and wind and solar farms. This backdrop is important when you consider what Enbridge will look like in five years.
Basically, Enbridge charges fees for the use of its assets or has long-term contracts tied to the assets it owns. While there are often inflation-based price increases built into the model, that's not going to provide a huge amount of growth over time. To really push the accelerator, management needs to expand its portfolio of toll-taker infrastructure assets. For example, in mid-August, Enbridge increased its ownership stake in the Gray Oak Pipeline, taking it from 22.8% to 58.5%.
This transaction gives Enbridge control of the asset and is expected to be immediately accretive to distributable cash flow. However, you can't predict such moves. But you can get a better handle on what will happen with the company's CA$10 billion capital investment program. And that suggests that Enbridge will be bigger in five years' time than it is today.
A lengthy list
Technically, Enbridge's capital spending program is CA$13 billion, but it has already spent around CA$3 billion, leaving a nice round CA$10 billion to go. Given the breadth of the company's portfolio, it has a lot of options, and the plan extends all the way out to 2027, roughly five years from now. Some projects are lumped together into one overarching theme, like adding solar power to Enbridge's pipeline operations. The sub-projects here will be completed at various points over multiple years, with the end goal of Enbridge using clean energy to power its own assets. Most of the natural gas utility investments on the docket are spread over time, as well.
That said, there are a number of large projects in the bigger mix. For example, in 2026, Enbridge expects to bring a CA$1.2 billion T-North expansion project online. It has already received interest from customers in this natural gas investment and now needs to get local and regulatory approvals. If all goes according to plan, construction will begin in 2025. That said, there's further growth opportunity in the company's T-South pipeline that could be opened up if the T-North investment goes well.
In 2027, Enbridge is looking to get the Woodfibre LNG terminal up and running. This CA$1.5 billion investment is relatively new. The company announced a partnership in July here that hopes to build a liquified natural gas terminal from the ground up. It already has a commitment from BP for 70% of the terminal's capacity, with the potential for that figure to go up to 90%. The company is still getting approvals, but it hopes to break ground in 2023.
Some of the most notable investment plans, however, live on the clean energy side of things. Here, Enbridge has three large offshore wind projects in Europe on which it is working. In late 2022 it expects the Saint-Nazaire offshore wind farm to begin generating electricity. In 2023 the Fecamp offshore wind farm should come online. And in 2025, Calvados offshore wind farm is expected to be completed. Together these projects account for roughly CA$2.5 billion.
What's really notable about this offshore wind farm spending is that these three projects account for 25% of the company's scheduled investment plans. Currently, clean energy only accounts for around 4% of Enbridge's earnings before interest, taxes, depreciation, and amortization (EBITDA). So this isn't some side project; Enbridge is looking to materially expand this business line.
Bigger is better
Investors enticed by Enbridge's generous 6.3% dividend yield have a lot to monitor on the capital investment and growth fronts. If the company can execute on all of its plans, it will be notably bigger in five years than it is today, with a material boost in the size of its clean energy operations. That said, there is one thing of note that is missing here -- Enbridge isn't earmarking any material growth capital to its oil pipeline business. Essentially, all of this spending is focused on helping Enbridge move in a cleaner direction, which is exactly where the rest of the world is heading, too.