- James, one of President Biden's first moves in office has been to step up efforts to tackle climate change, and that included his executive action to cancel the Keystone XL pipeline expansion. What do we know so far, and what are the implications of this decision?
- Yeah, you're absolutely right, Anthony. Remember that Keystone and Trans Mountain and the Mainline are all existing pipelines with oil flowing through them, but these expansion pipelines are very economically important. And President Biden did revoke TC Energy's permit to build Keystone XL just this week, which was one of his campaign promises so probably not a big surprise.
There are many implications of losing this one. It'll be negative for TC Energy's growth profile. It'll be positive for Enbridge's Mainline, because it'll face less competition. And it will be negative for the Canadian oil and gas producers who would have had another low-cost option for accessing end markets in the US.
- And the news, obviously, had an impact on the energy market. Can you give us a sense of what happened, and was it an overreaction?
- Yeah, we certainly noticed that, too, and we're asking the question. Keystone XL probably would have been about $7 per share of value to TC Energy. Call that about 10% to 15% of their share price if it had been successfully completed. But I don't think that investors had much if any of that amount priced into the stock, so I do think that it was an overreaction.
Now, the disappointment likely centered around the fact that this was just such a great project in terms of the contracting arrangements with the shippers and the risk-sharing agreement with the government of Alberta. Part of it also might have been investors asking, what is TC Energy going to do next? A large M&A transaction, for example, may not have been well received by investors.
- Now, of course, the Keystone XL pipeline gets a lot of headlines, but there are other big pipelines that are being pursued today. How are those coming along?
- Yeah, I'm happy to say that we're seeing progress. So first on the Trans Mountain expansion, which is owned by the government of Canada, and would take oil from Edmonton towards Vancouver, construction is moving ahead there with the timeline to get it into the service by 2022. Construction has been a little bit slow recently because of a few safety incidents at the end of last year and also general restrictions due to COVID-19.
The other is Enbridge's Line 3 replacement, which would take oil in the other direction towards the Great Lakes in Wisconsin. The Canadian section was finished last year. And on the US side, we recently received all the remaining state and federal permits in November, so construction is authorized. It's going ahead. And there's going to be a fairly fast construction timeline to get it finished, hopefully, by this year.
- So what's your view on the pipeline sector today given all these changes that we've seen in recent months?
- Yeah. Well, certainly having any of these projects built would be a win, because as you know, we don't have enough pipeline capacity to get everything to market. And the balance of about 250,000 barrels a day does move by rail, which is more expensive, and it's not as safe. So we are moving in the right direction.
We're still reasonably upbeat on both Enbridge and TC Energy. And it's partially because we see decent value, but it's also because pipelines benefit from economic reopening in the sense that as we reopen, there's going to be more economic growth, and that's usually positive for commodity prices. And in turn, the pipeline's customers will be more financially secure, and they'll be able to pursue their growth opportunities.
- What's the one key takeaway for investors who might have exposure to the energy sector or might be looking to get exposure down the road?
- Yeah. I wanted to mention today that we saw Enbridge hike its dividend in December, which was nice to see, but it was an increase of only 3%. And that's probably one of the lowest levels we've seen in a really, really long time. And it's an important signal to investors that the growth prospects for pipeline companies are slowing down, and they're slowing down a lot. So that's a trend that investors should be aware of.
And they should also keep an eye out for any transition towards other types of energy infrastructure investments, perhaps cleaner forms of fossil fuels like natural gas or even renewables like wind and solar. It's still early days for those themes, but I think it would really help give investors confidence around the dividend growth profile of the pipeline stocks going forward.
- James, thank you very much for your time.
- Thanks Anthony.