Enbridge Inc T.ENB

Food for thought regarding the "generational opportunity"

[Obscure1]

ENB is buying the 3 gas distribution companies from Dominion Energy (D) for US$14 billion.  The price was hashed out by the number crunchers on both sides of the deal to reflect an agreed upon Net Present Value of future cash flows according to industry standards.  

What nobody is talking about is that ENB picks up 78,000 miles of "in the ground" gas pipelines in the deal.  

According to FERC, the average cost of installing new gas lines in 2023 was $10.7 million per mile. 

If you multiply $10.7 millon by 78,000 miles, the total is $834 billion for the assets in the ground.  It gets better because as we know too well from the Line 3 and then the Line 5 fiascos, getting approvals is very difficult.   

So, ENB bought got pipeline for free because the $14 billion selling price only covers the cash flow generated from distributing the gas to the 3 million customers.  

What do we learn from that?

We have learned from our friends at Suncor (via their purchase of the two minority interests of Fort Hills) and elsewhere that assets in the ground can be purchased at a steep discount to the book value of those assets. 

The unspoken but clear message is that the world is moving on from hydrocarbons as an energy source for transportation and heating and for the grid to a lesser degree. There is no other reasonable explanation for why Dominion Energy would hand over 78,000 miles of working pipeline for free.  Dominion made the decision to exit the hydrocarbon business several years ago as evidenced by the sale of their east coast gas pipeline to Berkshire Hathaway in the summer of 2020.  Dominion announced that the proceeds of the sale of assets to ENB will be used to fortify its balance sheet so that it can proceed with its strategy to invest in renewables without debt. 

Should we be concerned that ENB is buying assets when a big company like Dominion is walking away from everything hydrocarbon?

We should at least think about it.  I can guarantee that ENB has thought about it.  At the very least, ENB has made it loud and clear that the company is moving away from transporting lionquids (oil) and towards gas (natgas and LNG).

If the use of hydrocarbons are on a one-way path to extinction, why would ENB be investing in hydrocarbons?

I think it is all about timing.    

It is very clear that EV's are replacing ICE vehicles.  The legislation in regards to banning the sale of new ICE vehicles has been set to 2035 but there are also interim dates that limit the percentage ICE vehicles allowed. The legislation is sending seimic ripples through the legacy auto industry.  Unfortunately for legacy auto companies, they are very late to the game versus Tesla and many Chinese EV makers and I'm pretty sure that we will see some of the big names go bankrupt by the end of this decade. When the low cost Chinese EV makers eventually get a toe hold in the USA, ICE vehicle sale will plummet.  In the meantime, Tesla is expected to be selling $24,000 EV's by the end of this year which is going to really turn things upside down.  

The bottom line is that gasoline and eventually diesel sales are facing extinction, and it is going to happen sooner than later.  

ENB is a forward thinking company, and it is preparing for the demise of gasoline and diesel powered vehicles by focusing on natural gas distribution.  Suncor investors refuse to believe it but their days of milking gasoline sales are numbered.    

The natural gas industry has a MUCH longer horizen than the gasoline business. 

Why?

My home is heated by natural gas.  So are 3+ million other homes in Ontario.  It currently costs $50k or more to make your existing home independent of the grid.  That is a chunk of $ compared to the average gas heating bill of $1,300 per year.  Very few people will be converting voluntarily for obvious reasons.  

The ENB purchase of the 3 Dominion Energy gas distribution companies which are located in states that have legislation in place to "ban the bans on the use of natural gas".  The 3 million new customers for ENB aren't going anywhere any time soon.  

The number crunchers for Dominion valued the 78,000 miles of pipeline at zero. I think that is a mistake.

In light of the above, it becomes easier to see why Greg Ebel keeps beating the "generation opportunty" drum.

[YupnDump]

as jim Cramer would sayHONK HONK  BUY BUY BUY

[TimeBuilder]

Re: pipe in ground? Does anyone know when the pipe was put under ground ?   Any chance of future leaks etc. ? Just curious  as a very long term Investor here.   ;>)