Sarah Travers
Enbridge, a prominent figure in the global energy industry, is optimistic about the future demand for crude oil and its capacity to deliver substantial shareholder returns. As the operator of North America’s largest and most complex oil and liquids transportation network, Enbridge is responsible for transporting 30% of the continent’s oil production. Boasting a dividend yield close to 7%, which has seen consistent growth for 29 years, the company is strategically positioned for long-term success.
The company anticipates robust oil demand through at least 2050, driven by the expanding global economy and rising consumption in developing markets. Enbridge’s leadership foresees global crude oil demand reaching over 100 million barrels per day (BPD) by mid-century, potentially climbing above 110 million BPD. This outlook is notably more optimistic than the International Energy Agency’s forecast, which estimates demand will decrease to 97 million BPD by 2050.
This favorable projection is a positive sign for Enbridge’s primary business operations, which generate cash flow based on the volume of crude oil transported through its extensive network of pipelines, stored in its terminals, and processed at its export facilities. Although the contribution of Enbridge’s liquids pipelines to its annual earnings is expected to decline slightly from 57% last year to around half, owing to the acquisition of three natural gas utilities from Dominion, this segment remains a vital source of revenue and cash flow.
Enbridge is committed to expanding its oil infrastructure to seize growth opportunities presented by the anticipated increase in demand. The company has allocated $300 million towards three significant projects: expanding the Gray Oak pipeline capacity by 120,000 BPD, adding 2 million barrels of storage at the Enbridge Ingleside Energy Center, and constructing the Enbridge Houston Oil Terminal. These initiatives aim to bolster Enbridge’s foothold in the North American oil sector and enhance its export capabilities.
Looking ahead, Enbridge is exploring additional opportunities for crude-related expansion. Plans are in place to increase the capacity of its Mainline oil pipeline system in Canada by up to 150,000 BPD. With the export market showing strong potential, Enbridge expects this to drive further growth in its liquids pipeline business.
Despite its strong confidence in crude oil, Enbridge is diversifying its growth strategy beyond oil. The company has significantly expanded its natural gas and renewable energy portfolios. The acquisition of Spectra Energy for $28 billion in 2017 bolstered Enbridge’s gas transmission business, which now contributes about 25% of its earnings. Enbridge continues to invest in gas infrastructure, including new pipelines and a liquified natural gas (LNG) export terminal.
The recent acquisition of three natural gas utilities from Dominion will further boost Enbridge’s stable gas distribution earnings, increasing their share of the company’s income from 12% to 22%. This figure is expected to grow as Enbridge dedicates billions to enhance its gas distribution and storage capabilities in the coming years.
Additionally, Enbridge is building its renewable energy portfolio, which currently accounts for approximately 3% of its earnings. The company has invested in various onshore renewable energy projects in North America and has established a notable offshore wind energy presence in Europe. Enbridge is committed to expanding its renewable energy investments, with several projects under development that are expected to increase its renewable-powered cash flows. The company is also exploring other lower-carbon technologies, including carbon capture and storage, blue ammonia, and green hydrogen.
By diversifying its energy investments and reducing reliance on crude oil, Enbridge is well-positioned to sustain its cash flow and dividend growth even as the energy landscape evolves. This strategic approach ensures that Enbridge can continue to provide its high-yield dividend, making it an appealing choice for income-focused investors seeking both stability and growth.
