Enbridge buys 30% stake in Woodfibre LNG project and eyes more LNG investments

Enbridge said July 29 it will acquire a 30% stake in Pacific Energy's Woodfibre LNG project in British Columbia as North America's largest midstream company invests more heavily in the burgeoning Canadian LNG industry.

The roughly $1.5 billion investment in Woodfibre comes with Enbridge also planning to spend at least $2 billion to expand the length and capacity of its T-South Pipeline system from the Montney shale gas supplies to Vancouver and, ultimately, to the Woodfibre facility once the LNG project comes online in 2027 as planned. The new T-South open season would add 300 MMcf/d of capacity by its completion in 2028.

Enbridge also completed a successful open season to expand its T-North gas pipeline by 535 MMc/d for nearly $1 billion, which is up from previous plans for a capacity expansion of 400 MMcf/d for about $750 million. T-North is slated for a 2026 completion.

The 280 MMcf/d Woodfibre LNG export facility is touted as the lowest-carbon LNG project in North America because it would use clean hydro electricity to power its operations. Construction is slated to begin next year.

Enbridge CEO Al Monaco cited the growing global thirst for LNG -- especially since Russia's invasion of Ukraine -- and the strategic location with British Columbia's proximity to Asia, shale gas supplies and existing Enbridge pipelines that are ripe for expansion. He also cited Woodfibre's greater certainty with BP already contracted for 70% of the gas capacity over 15 years.

"The West Coast is highly competitive in any future energy scenario we see," Monaco said, noting that LNG shipments to Asia can move two to four weeks faster than those from the US Gulf Coast because of the distance and the avoidance of Panama Canal congestion. "This investment is a natural extension of our export pipeline strategy, with strong commercial underpinnings."

Enbridge's investment includes $900 million in equity and $600 million in project debt financing.

But Woodfibre might just be the first of multiple direct Enbridge investments in LNG projects from Canada to the Gulf Coast. Monaco described Woodfibre as a learning experience for Enbridge.

"It's a smallish investment for us to start out in liquefaction, and we'll develop more capabilities as we go forward," he said. "I think we have the appetite."

"There's a lot of opportunities, particularly in the Gulf Coast, and we're well connected there," he added.

In fact, Enbridge recently agreed to spend $400 million on its Venice Extension project to connect its Texas Eastern Transmission Co. to the planned Plaquemines LNG project in Louisiana.

Enbridge also is considering building the $1.2 billion Rio Bravo gas pipeline and the $400 million Valley Crossing Pipeline expansion projects in South Texas if the Rio Grande LNG and Texas LNG projects, respectively, proceed.

Oil takes a backseat

With Enbridge focused so heavily on gas, LNG and renewable energy projects at the moment, crude oil is taking a temporary backseat as Enbridge works on contracting negotiations on its Mainline crude oil network.

Mainline volumes in Canada and into the US averaged 2.78 million b/d in the second quarter amid a heavier-than-usual maintenance period for Canadian oil sands producers, but Enbridge said Mainline is still on track to average 2.95 million b/d for the full year as previously projected as Canadian oil production volumes rapidly ramp back up during the summer and fall months.

However, Enbridge oil pipeline and storage terminal projects are being kept from final investment decisions -- despite planning and regulatory work proceeding -- as Mainline contracting is resolved, which is not expected to occur until 2023.

Late last year, Canada's energy regulator rejected Enbridge's effort to overhaul contracting on the Mainline pipeline, maintaining the crude and NGL transportation system's 70-year-long status as a "common carrier" network. The Canada Energy Regulator ruling denies Enbridge's years-long fight to change the crude pipeline network's monthly nomination system to long-term committed contracts with just 10% of capacity set aside for spot shipping.

Enbridge contended the move was necessary for volume certainty and less month-to-month volatility, as well as stronger Canadian crude pricing. Smaller Canadian producers feared higher tolls, or being squeezed out entirely with their barrels stranded in Alberta and sold at deeper discounts. Now, compromise negotiations are underway with 38 producers on the right path forward, Monaco said, with a decision expected in the coming weeks. Then, the proposal would move through the CER regulatory process into next year.

"We're progressing discussions with shippers on a new mainline tolling agreement with two attractive commercial paths under evaluation -- an incentive-tolling or cost-of-service model," Monaco said. "Both options keep us aligned with our customers and provide predictable cash flows at an appropriate return. We aim to make a decision by the end of the summer on the best path forward."

With the capacity to ship 3.2 million b/d across 8,600 miles, Mainline is by far Canada's largest crude transporter and exporter, moving supplies from the Alberta oil sands to the Ontario and US Midwest refining markets -- and farther to the Cushing, Oklahoma storage and pricing hub, and to the US Gulf Coast through additional pipelines.

However, Enbridge remains interested in modest optimization and capacity expansions to Mainline, as well as downstream pipelines to the USGC, such as the Flanagan South and Seaway systems. Then, Enbridge is considering an expansion of 2 million barrels to its Ingleside crude export terminal in Texas, as well as its deepwater Sea Port Oil Terminal project, called SPOT, with Enterprise Products Partners offshore of the Houston Ship Channel.