Enbridge Inc

TSX:ENB

Earnings Call Transcript 2022-Q2

[Operator]

Welcome to the Enbridge Inc. Second Quarter 2020 Financial Results Conference Call. My name is Sylvia, and I will be your conference operator for today's call. [Operator Instructions]. Please note that this conference is being recorded. And now I would like to turn the call over to Jonathan Morgan, Senior Vice President, Capital Markets. Jonathan, you may begin.

[Jonathan Morgan, VP, IR]

Thank you. Good morning, and welcome to the Enbridge Inc. Second Quarter 2022 Earnings Call. Joining me this morning are Al Monaco, President and CEO; Vern Yu, Chief Financial Officer; and the heads of each of our business units, calling Gruending Liquids Pipelines; Cynthia Hansen, Gas Transmission and Midstream; Michele Harradence, Gas Distribution and Storage; and Matthew Akman, renewable power and new energy technologies.

As per usual, this call will be webcast, and I encourage those listening on the phone to follow along with the supporting slides. We'll try to keep the call to roughly 1 hour. And in order to answer as many questions as possible, we'd appreciate you limiting your questions to one, plus a single follow-up as necessary. We'll be prioritizing questions from the investment community.

So if you are a member of the media, please direct your inquiries to our communications team, who will be happy to respond. As always, our Investor Relations team will be available following the call for any additional questions.

On to Slide 2, where I'll remind you that we'll be referring to forward-looking information on today's presentation and in the Q&A. By its nature, this information contains forecast assumptions and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in our public disclosure filings. We'll also be referring to non-GAAP measures as summarized below. With that, I'll turn it over to Al Monaco.

[Al Monaco, President, CEO & Director]

Thanks, Jonathan, and hello, everyone. I'll start off this morning with how we're doing on our key priorities midyear. I'll then cover our business update, including the new investments announced today that further accelerate our natural gas strategy. Vern will recap our capital allocation framework and review our financial results, the future outlook and ESG performance.

Before we do that, let me begin with the bigger picture and the two-pronged strategy we laid out at Enbridge Day. It's pretty clear we're in a global energy crisis, and that will need all sources of supply to meet demand with affordable, sustainable and secure energy. And as we've said before, North America is extremely well positioned with a globally competitive, reliable and sustainable supply.

Given the inflection point in energy markets we've experienced, our two-pronged strategy is proving to be the right one, that is to continue investing in the best conventional opportunities while ramping up in franchise, low-carbon infrastructure over time. Our focus in the last few years is to build out our export infrastructure, and that's even more relevant today.

Acquiring the Ingleside export facility filled out our Gulf Coast liquid strategy and is already opening up low-carbon export opportunities. And with our natural gas systems along the Gulf Coast and in [indiscernible] on global LNG demand growth. We've got a plethora of low-carbon development opportunities in flight that nicely leverage our existing assets and fit our low-risk model. And we see renewables, RNG, hydrogen and carbon capture, picking up steam and bolstering growth. With that context, here's the midyear check against our priorities.

Our number one priority will always be safety, and we're tracking well this year. Operationally, we performed well in Q2, strong utilization, record gas transmission delivery days and good wind resources. Results wise, we had a solid quarter. and we're on track to achieve our full year EBITDA and DCF per share guidance. And that puts us in good shape on our 3-year, 5% to 7% DCF per share CAGR target through 2024 and off of 2021.

The balance sheet is strong, and we're on track to exit '22 at the low end of our leverage range. So far this year, we've secured $4.5 billion of new investments that are right down the middle of the Enbridge fairway. That includes expansion of our BC system and a 30% stake in wood fiber LNG. So our post 2024 secured growth hopper is filling up nicely.

On capital allocation, we'll continue to be disciplined by optimally deploying growing free cash flow. Part of that is returning capital to a steadily growing dividend and we've initiated share buybacks, as you've seen.

On to the business update, beginning with liquids. After an extended upstream and downstream turnaround season, Mainline volumes are ramping up, and we expect to get to the full year average guide of 2.95 million barrels per day. In Gas Transmission, we had 4 of the top 5 power plant peak delivery days in the last 5 years, and we had record LNG and Mexico export deliveries at 3 Bcf a day in April.

A couple of weeks ago, we also reached an agreement in principle on the Texas Eastern rate case, so very good news there. And we're moving along well on $7 billion of capital in execution. In the utility, there's another $3 billion underway, including 40,000 customer adds this year and 3 more RNG projects. And finally, in renewables, we're in heavy construction mode with 4 offshore wind projects and 10 solar cell power projects, totaling almost $3 billion.

And again, part of that is offshore France. St. Mozer is going well and on schedule to start generating cash flow later this year. Now a brief update on Liquids fundamentals and Mainline coal. The global energy inflection point I referenced earlier is driving improving North American oil fundamentals, and this is Colin's John Madden type graphic that explains why.

First, the historically long turnaround season has wound down. WCSB production is ramping back up as the Mainline was a portion for August deliveries. So basically, we're at capacity. And Permian supply is strong, with growth this year expected around 500,000 barrels a day. Given OPEC constraints embargo barrels, and a return of Asian economic growth, the natural outlet for light barrels is exports to Europe.

Over time, we'll see inventories building back up, including the U.S. strategic petroleum reserves. And you recall, inventories are extremely low levels right now. These shifting fundamentals are positive as we're well positioned on both light and heavy barrels. On Mainline tolling, discussions with our customers continue. We spent quality time exchanging information upfront, and we're now in negotiations.

Overall, the process, I would say, and our discussions with our customers, have been constructive. As you know, there's a preference for an incentive-based model, which has worked well for our customers and us over the last 25 years. We're pursuing that option, but we're prepared to shift the cost of service if needed, and either option is acceptable to us as we've said in the past.

And to keep that latter part moving along, you'll likely see some required prefiling CER notices in the next month or so. We're motivated to land something that works for our customers and a reasonable risk return profile for us. Timing-wise, we'll likely decide which of the two pass will be on by the end of the summer.

Let's shift now to our LNG strategy, starting with the fundamentals and how we're positioned. And right off the bat, it's clear that natural gas is an increasingly exciting story and will be a growth driver for us in the long term. First, North American LNG exports are expected to increase to 30 Bcf per day, and everyone knows the reasons behind that.

Our assets are critical to making that happen with last mile connectivity. You can think of our U.S. Gulf Coast and BC Mainline systems as headers connecting growing low-cost supplies in Appalachia, the Permian, the Haynesville and Montney, with export market demand pull. We supply 4 operating LNG plants in the Gulf, soon to be 5, actually. And today, we make up roughly 20% of North American exports and those connections are supported by long-term take-or-pay contracts.

But as you can see here with the bar chart, the precedent agreements we signed on two more LNG facilities that are pending FID, we could see our market share increase to 30% of exports. While our focus is on pipeline connections, we've been open to liquefaction investments, which we talked about before, providing they meet our investment criteria, namely, it needs to be a value chain extension of our existing pipelines that anchor expansions or new lines, so that means pretty much directly connected to liquefaction.

It needs to be aligned with our low-risk commercial model, so highly predictable cash flows and accretive to future growth, so with expansion potential. So here's how our LNG strategy is on fully beginning with the Gulf Coast. With venture global sanction, we're now underway with the VENICE [ph] extension that's a solid USD 400 million investment with a 20-year contract.

We secured now another $1.6 billion with the [indiscernible] new build and the Valley Crossing expansion, both of the associated LNG plants there are pending FID by next decade and Texas LNG. And of course, we're now also in discussion with LNG proponents other than those to see what other opportunities are there.

Related to the LNG connections themselves, a recent open season rebuild very strong customer interest in upstream access to our headers to connect growing Haynesville supply to LNG. So we're now designing potential options to expand Texas Eastern and Valley Crossing, so stay tuned on that over the next few months.

Moving north to BC and our T-North system. The fundamentals here point to strong WCSB supply growth over the next several years. We've seen a lot of positivity from our customers recently, which also came through on Alliance's contract extensions. This is all being driven by very low comps and a liquids-rich resource base that rivals U.S. ships. And the basin presents a great opportunity to feed growing regional and global demand with natural gas.

Our BC Mainline will be a critical part of getting gas to market, particularly to support LNG pull. To that point, we've completed a very successful open season and now sanctioned a 535 million cubic feet a day expansion at T-North, and that's larger than we originally thought. This 1.2B expansion is mostly compression and commercially, it's under cost of service.

The next step is to engage stakeholders and file a regulatory application and the targeted ISD here is late 2026. Today, you saw we also launched a binding open season to expand T-South, which is driven by the recent FID of wood fiber LNG. That expansion would replace capacity currently moving volume to the Pacific Northwest, which will be utilized to feed wood fiber LNG on West Coast when it's completed.

Our preliminary estimate is $2.5 billion, also total under cost of service with a projected ISD of 2028. Now if T-South does move ahead, we could see a further expansion of T-North, so that's another opportunity. T-North and T-South, I think, really illustrate well the power of our strategically positioned system for low-cost access to growing markets. Now that system also allows us now to extend our value chain to LNG liquefaction.

This morning, we announced a 30% equity investment in Wood Fiber, which will be the second LNG facility on the West Coast. This is a really exciting ground floor opportunity for us, so let me provide some context on what's behind the investment. Our partner, Pacific Energy, has developed a project and established excellent community relationships. With fiber is integrated with Pacific's upstream reserves a 2.8 Tcf in the market, which is currently producing around 300 million cubic feet a day with contracted transportation capacity on our system, as I mentioned.

Our 30% ownership in Wood Fiber is structured as a preferred interest, which provide us with a predictable stream of cash flow and a solid return. Our share of the expected cost is USD 1.5 billion, with about 70% of the liquefaction facilities project financed. So our equity investment is approximately $900 million through 2027, which will be easily funded with an existing investment capacity. In fact, Vern will discuss the ample room we have to deploy free cash flow going forward beyond that.

We've evaluated a number of LNG projects in the past, and this one fit the investment criteria boxes I mentioned earlier and more. Strategically, it aligns with our very positive view of natural gas today and well into the future, particularly, global LNG growth. It extends our value chain as Wood Fiber connects to our upstream pipes, as you see on the map here, and anchors their expansion. Its size and use of existing infrastructure and roading make it highly executable, and we're very pleased with First Nations support of the project, and I'll come back to this in a minute.

It also fits squarely with our pipeline utility model, supports medium and long-term growth and it generates a strong equity return. So it clears the capital allocation hurdles we've set for organic projects within the framework. And finally, what we really like is that it will be among the lowest emission facilities in the world at less than 0.4 tons of CO2 equivalent per ton of LNG delivered. So all in, it clearly hits the mark for us strategically, financially and have aligned with our emissions objectives.

Wood Fiber is located near [indiscernible] cited on industrial land that previously housed a pulp and paper mill. The plant produced 2.1 million tons annually, that's around 300 million cubic feet a day with 250,000 cubic meters of storage. There's very good access to the site by a loud sound, which is well traveled, and we expect loadings of 2 to 3 ships a month. Importantly, the Squamish nation itself approved the project, which includes a long-term benefits agreement.

And the LNG plant and upstream infrastructure has received local, provincial and federal approval. 70% of the capacity of the plant is under long-term contracted offtake with BP, and more capacity is likely to be locked up. Fortis will expand their system, which connects T-South with the plan itself.

Wood Fiber is ideally positioned to meet growing Asian demand and here's how we see that picture. First, Asian LNG demand is forecast to more than double, and Wood Fiber is among the lowest cost supply sources because of the globally competitive Montney supply. There's roughly 150 Tcf of reserves at a cost of less than $2 an MMBtu, which means Canadian LNG is very high in the global LNG dispatch order.

Another part of the value equation here is approximately the markets, which saves 2 to 4 weeks of shipping times to lower transportation costs and emissions. Combined, these factors make wood fiber LNG breakevens on par or better than U.S. Gulf Coast alternatives. So even put aside the -- today's frothy global LNG market, the West Coast is highly competitive in any future energy scenario that we see.

While broadly here, as a side, we see a huge opportunity here for Canada to materially ramp up LNG exports. The economic benefits are obvious, but also for Canada to play a leading role in improving global energy security and reducing GHG emissions beyond our own orders. Finally, on execution of the plant will be modular design, which is ideally suited for this location under a lump sum turnkey EPFC contract. The final capital cost will be determined next April, and that will be the basis for setting our return and preferred distribution.

The Squamish nation has completed an environmental assessment of the project, and actually, it's the first one to be approved under the government of Canada's 5 principles frame that. With environmental approvals in hand, the team is now focused on construction permits. We've laid out the time line here with an expected ISD of 2027 and the spend is spread out over the next 5 years.

Before I turn to Vern, a quick recap on our low carbon strategy. As you know, our approach is to capitalize on existing infrastructure to extend growth with the same business model and returns as the rest of the business. All in, we've got close to $4 billion in development. with more on the way. On renewables, our development pipeline in France is about 2 gigawatts, providing good growth visibility there. Ten solar south power projects are underway on our own systems with another 300 megawatts in development.

On RNG, we've supported 50 projects, where producers have applied to the clean fuel funding program, and the gas transmission team is also developing 8 projects. On our Wabamun Carbon Hub in Alberta we're planning well test to confirm geology and finalizing commercial discussions with Capital Power and [indiscernible]. Recall here, we have 4 megatons of CO2 annually signed up, and we're in discussions with other potential partners.

The project is also supported by five indigenous groups, who can become equity owners in the projects, and we're looking forward to that. Finally, in the Gulf Coast, we're in discussions with off-takers for our proposed hydrogen and ammonia production facility at Ingleside. So with that, I'll turn it over to Vern.

[Vern Yu, EVP, Corporate Development & CFO]

Thanks, Al, and good morning, everyone. Before I review this quarter's results, I want to step back and remind you of how we're thinking about our low-risk business model. We've designed our business to be resilient through all market cycles, and it's proven itself out over and over again. The most powerful example of this was during 2020, where we were able to meet our financial guidance despite the significant impact that COVID had on global energy demand.

That's because our business is built on serving demand pull markets with strong long-term contracts, and we have conservative financial policies. Our contracts of commercial protections for rising inflation where about 80% of our EBITDA has built in toll escalators or we have cost of service recovery mechanisms. The majority of our debt portfolio is fixed rate, which limits the impact of higher interest rates.

Our cash flow stability allows us to be confident in our financial results and provides us with a lot of financial flexibility. We expect to generate growing cash flows this year, 9% over 2021. And this drives out our $5 billion to $6 billion of annual investment capacity.

Our balance sheet is in great shape, and we expect to be at the lower end of our debt-to-EBITDA range by the end of the year. All four credit rating agencies have reaffirmed our BBB+ stable credit ratings this year. We've continued to grow the dividend ratably with another 3% increase this year or in supplementing that with opportunistic share buybacks.

We've added $4.5 billion of new growth projects so far in 2022, which provides great visibility to our post-2024 cash flow growth. All of these projects come with the same low-risk model I just walked through and generate attractive returns. And let's remember, all of these opportunities have competed against all of our other capital allocation alternatives, including share buybacks.

Let's move to our financial performance. Our second quarter results were up significantly over 2021 on strong operational performance across all of our businesses, and we're seeing the benefit of the $14 billion of capital we put to work last year. We're tracking to our plan with some puts and takes across the businesses. In liquids, the Mainline moved just under 2.8 million book barrels a day in the second quarter, which was in line with our expectations given upstream and downstream customer maintenance activities.

As a reminder, our results and full year guidance include a provision for the ongoing Mainline tolling negotiations. Gas Transmission utilization was solid and last year's $1.4 billion expansion to our BC pipeline system is driving growth. In Q2, we saw good contributions from DCP and are stable on the back of strong commodity prices. But these assets represent less than 2% of our EBITDA, so it's not a big driver overall.

It's business as usual at the utility with a small impact from the sale of our Noverco assets at the end of last year. Our renewables business continues to benefit from strong wind resources, Energy Services remains below expectations due to tight basis differentials and backwardation and commodity prices. Results in this business are expected to return to a positive contribution next year with the expiry of certain contracts that are negatively impacted by current market conditions.

Finally, rising interest rates have had a slightly negative financing cost for us. So a very solid quarter. Let's move to our full year outlook. We expect our systems to be highly utilized for the rest of the year. Mainline volumes are rebounding after Q2 customer maintenance and we'll go back into a portion in in August. In Gas Transmission, strong commodity prices are generating a slight tailwind for our [indiscernible] and DCP investments while the utility and renewables are tracking to guidance.

Energy Services is expected to remain headwind for the balance of the year. In terms of DCF per share, maintenance spending is expected to pick up in the second half, which is aligned with our full year guidance and interest expense will be slightly higher than we expected given higher interest rates. Again, this clearly demonstrates the predictability of our business. I'll now move to our secured capital program.

Today, our secured capital program is at just over $13 billion. Execution is progressing well, with $4 billion of capital entering into service this year, driving cash flow growth in 2023. This capital spend is largely locked in under fixed price contracts providing good inflation protection. And we've added a number of new secured projects to our backlog this quarter. These new capital requirements are easily absorbed within our $5 billion to $6 billion of annual investment capacity, and there's no change to our equity self-funding model, as most of the capital that we've announced today will be spent beyond 2024.

Now let's talk about how this capital program feeds our growth story. Through 2024, our secured capital program drives a highly visible 5% to 7% DCF per share CAGR. This growth builds off a solid base in 2021, and we expect to continue to deliver 1% to 2% per year of growth from contractual revenue escalators and productivity enhancements. Our secured capital program will deliver another 4% to 6%, and all of this cash flow will be under low-risk commercial framework.

So we have excellent visibility in achieving our 3-year plan that ends in 2024. With the recent additions to our secured capital and the additional opportunities we're advancing, our capital program provides good visibility for longer-term growth. As we look forward, we continue to see a robust opportunity set, to fill in longer-term growth across all of our businesses, and we're seeing an uptick in development activity across both our conventional and low-carbon platforms.

As I mentioned previously, we have $5 billion to $6 billion of annual investment capacity driven by our growing free cash flow growth and our balance sheet capacity. Investment-wise, we will continue to prioritize rate base growth in our gas businesses along with low capital intensity, optimizations and expand teams across our footprint. These low-risk investments are highly executable with attractive returns and should drive a base capital program of above $3 billion per year. That leaves roughly $2 billion per year of excess investment capacity that will go to the next best alternative either more organic growth, share buyback, tuck-in M&A for debt repayments.

Even with the capital we've announced today, which is spread out over several years, we have meaningful investment capacity to deploy through our current 3-year plan. We'll continue to be disciplined, benchmarking all of our new investment opportunity against all of our capital allocation alternatives.

Before I turn it back to Al, let me update you on our ESG priorities and the great progress we are making there. At the end of June, we released our 21st annual sustainability report. We believe that ESG is foundational to our business, and we are proud of our performance.

You can see here in 2020, we set new ambitious goals across all aspects of ESG with clear pathways to achieving them. In 2021, we've put in place the organizational building blocks to make it happen, establishing specific plans across businesses, and aligning our compensation and financing costs to ESG performance. Our focus now turns to executing those strategies to achieving our goals, and we're making good progress there.

On safety, we reduced our TRIF rate over 29%. And we've heavily invested in pipeline integrity over $6 billion in the last 3 years. This underlies our commitment to driving industry-leading safety and reliability. Our mission performance remains on track as we have achieved a 27% reduction in emissions intensity since 2018 and a 20% reduction in the methane emissions in our Gas Transmission business.

On diversity, we are on our way to meeting our diversity and inclusion goals. Internally, that means enhancement to our recruiting process and mandatory training to reduce bias, combat racism and increase cultural awareness. And that's translating into real improvement across all levels of the company, including our Board of Directors.

Ultimately, we believe our approach to ESG aligns us with our stakeholders, customers, investors, our right-of-way communities and this provides us long-term strategic advantage. With that, I'll turn it back to Al to wrap up.

[Al Monaco, President, CEO & Director]

Thanks, Vern. To summarize, the business is running well, and we're on track to meet our financial targets. Along with the global focus on reducing emissions, the importance of energy security and affordability has validated our two-pronged strategy of investing in both conventional and low-carbon infrastructure.

We're executing our capital program, advancing our export strategy on both gas and liquids and securing new investments to support post-2024 growth, and we'll continue to be disciplined capital allocators, protect the balance sheet and advance our ESG commitments. And with that, I'll open it up to questions.

[Operator]

[Operator Instructions]. And your first question is from the line of Rob Hope at Scotiabank.

[Robert Hope, Scotiabank]

The first question is on the Woodfiber project and the investment in LNG liquefaction facility. This looks like a bit of a unique situation where you have a preferred interest to limited commodity risk. Can you speak to moving forward -- if you do get comfortable and investment in LNG liquefaction facilities, would you be willing to take a little bit of commodity exposure if it does yield additional upstream opportunities? And then I guess the follow-up question there would be, in the past or in the future, are you having discussions with proponents about other facility investments?

[Al Monaco, President, CEO & Director]

Okay. Thanks, Robert. I'll start off. With respect to the first part of your question around would we be willing to take additional risk. I think the short answer is that probably not. We searched far and wide for this opportunity. We looked at a lot of others actually, and we landed on this one because, as I said in my remarks, it ticked all the boxes for us. And one of the important boxes is ensuring predictability of cash flow. So we won't stray too far from that going forward, and we'll continue to look for the commercial models that support the rest of our value proposition, which you know well. Yes, the short answer on the second one, we're talking to others, yes. As you know, there's a lot of opportunities particularly in the Gulf Coast. And as I mentioned earlier, we're really well connected there. And lots of development going on. So sure, there's opportunities, but the investment criteria will stand, and we'll continue to be very disciplined on this going forward.

[Robert Hope, Scotiabank]

And then just a follow-up for I guess, another question. On the Mainline, recontracting efforts. It's been relatively flat from the producer community on this one right now. Can you maybe speak to what the main sticking points in terms of negotiations have been and from the outside I believe the investment community is taking the fact that it's been acquired from producers as they seem, we'll call it relatively aligned and the expectation is that a negotiated settlement will be reached.

[Al Monaco, President, CEO & Director]

Well, I'll turn it over to Colin here, but generally speaking, Rob, like I said earlier, it's going pretty well in terms of our discussions. But as you can imagine, there's all kinds of different interests at play here. overall, there's 38 potential shippers involved in this discussion and who will have to approve any kind of settlement. So there's lots of different views on it. And I'm not surprised that it's relatively quiet as you're putting it in terms of the public picture, but I can tell you there's a lot going on behind the scenes in terms of the discussions with our customers. And as I said earlier, a lot of information being shared to make sure that we have the transparency, not just into what we think the future holds, but how we performed under this Mainline tolling over the last 10 years. And a big part of that, Robert, is the service we provided and I think a real good value for our customers out of the basin and our refiners downstream. So I think we're going to continue to work on it. But Colin, you may want to add something to that.

[Colin Gruending, EVP & President, Liquids Pipelines]

I think you had it. Just briefly, I think, Robert, I think the historic ordering mainline contracting proposal, there was a disagreement amongst industries as you recall, that was around contracting the line. We've taken that off the table, to be clear. And so once we renew fat, it's removed that point of difference. So industry is now, in our view, relatively aligned on what they want from us, as Al said, which is alignment to hustle towards their interest, which we're -- we've now contained in our tolling proposals. But we're not there. We cannot assure we're going to get to a negotiation here. We've got alternatives that are equally attractive to us. So anyway, I love more color there, Robert.

[Operator]

My apologies, Jeremy Tonet from JPMorgan.

[Jeremy Tonet, JPMorgan Chase & Co.]

Just want to come in a little bit more on wood fiber here and the preferred structure that you set up. I was just wondering if you could touch a little bit more about specific, I guess, risk versus reward parameters or hurdles you're looking for here. Were you always seeking a preferred equity structure? And could this preferred equity convert into common or have any other upside levers down the road? Just trying to get a better feel for this.

[Al Monaco, President, CEO & Director]

The short answer on the second part is, no, it's not convertible to anything under this arrangement. And I think that probably the biggest upside lever to think about here is the integration we have upstream, Jeremy. As you see, it's anchoring a lot of opportunity and the investment itself is really, as we said earlier, kind of an extension of the value chain that we've got in BC. We're a big player there operationally. We've got -- we've done a lot of project execution in that region. So I think we're bringing that to the table.

The structure itself, we always intended to essentially eliminate as much commodity exposure here as we could and I think we've achieved that with this structure. The simple way to think of it is we'll have an investment here with a certain level of equity and we'll earn pretty much a return in that business that that is, again, pretty much fixed and very consistent with the rest of Cynthia's GTM business. So that's a high level of how we're looking at it. I don't know, Cynthia, if you want to add anything to that.

[Cynthia Hansen, EVP and President, Gas Transmission & Midstream]

Thanks, Al. I would just add, as you said earlier in your comments that it is that opportunity for us to have very assured cash flows. So we're working with a partner. We're going to have an opportunity to continue to build on the existing relationships we have in BC, and it's a great opportunity for us.

[Al Monaco, President, CEO & Director]

And just maybe a little bit more color, Jeremy. What we really like about this is, aside from what I mentioned earlier about very low rate of emissions really world class on that front. But this is an integrated project, which means that the supply costs and tools are essentially locked in, if you look at the partnership level structure here. And then, of course, there's a commitment by BP to take 70%, which is really the driver here. So it's pretty much locked down from our point of view. And as we alluded to earlier, that's sort of what we're looking for with this investment. And it's a smallish investment for us to start out in liquefaction and we'll develop more capabilities as we go forward. But this one really fits the bill for us, I think, at this point.

[Jeremy Tonet, JPMorgan Chase & Co.]

Got it. Yes, that makes sense a lot of pull across the portfolio. So obviously, a lot of leverage in that sense. And next question I had, just really wanted to talk about there's a lot of natural gas logistics growth that you've talked about here, but the Haynesville specifically, seems like there's a good amount of growth there. I think you had talked about kind of initiatives there in the past. I was just wondering how you think Haynesville growth might play into Enbridge's future.

[Al Monaco, President, CEO & Director]

I'm going to let it speak to the details here. But essentially, we carried out an open season a little while ago here, and we were quite impressed, I guess, with the level of interest in order to get on to our system. So we heard from a lot of customers and we're really in the process now just designing options for them. And I alluded to, we probably see some activity here later in the year. But again, big header system, very cost effective and the natural lead into the Gulf Coast LNG projects from the Haynesville directly. So that's the big picture. Cynthia, maybe you want to speak to some of the other aspects of this?

[Cynthia Hansen, EVP and President, Gas Transmission & Midstream]

Yes. Thanks. So as Al said, with the results of our potency been so positive, we are just those details now with our customers. So it's both that demand pull from the LNG exports and some of the industrial users in that space and then the supply push from Haynesville. And as we're working through those project details, of course, our connectivity with that [indiscernible] System, the ability to tie into some other existing infrastructure really is where we're looking to add value with our customers. So we are working through those details now. It is an exciting time, but it is up to us to work with our customers and come up with those competitive solutions. So more to come in the future.

[Al Monaco, President, CEO & Director]

That's exactly right, Jeremy. When you think about it, this is a competitive space, right? And other players have desires to add more capacity in this region, but the advantage we have is we're in the right spot and the expandability of the system is there. And this is all about costs, ensuring that you've got the lowest cost solution right from the supply source into the LNG facility. So we have a good carve-out of advantage here, if I can put it that way.

[Operator]

Ben Pham from BMO is online.

[Benjamin Pham, BMO Capital Markets]

I appreciate the disclosure on the inflation protection on existing assets, but I'm wondering as you sanction new projects and we're seeing cost creep on some of the bigger infrastructure projects out there. I'm thinking specifically Woodfiber, as you go through cost estimates, like how do you balance that inflationary risk against achieving growth targets and other ways to achieve returns for share buyback.

[Al Monaco, President, CEO & Director]

Yes. This is a great question, very topical, Ben. So maybe what I'll do is I'm going to have Vern talk to the protections you referred to in the business. Maybe I'll just touch a little bit on the broader issue around investment and how we look at that given the pressures. First of all, I think, generally, if you look at our capital spend profile here in the last 2 years and then going forward, we've really completed a very large chunk of the secured program. And of course, that includes Line 3. If you look at the program size that Vern referred to at $13 billion, about $3 billion of that has been spent. So we've got another $10 million to go. And as you look at the list of projects certainly smaller, there isn't sort of the mega scale Line 3 projects in there. They're diversified across the business and geographic areas.

And if you look at the projects right now, the way we're situated, we're pretty much on time and on budget. There's a few things here and there, but that's the bigger picture. What really gives us some comfort though is around our major projects execution process. I think we've had a pretty good track record here. We try and lock down as much of the cost as we can and fix price a lot of it.

The scale of Enbridge helps here in terms of supply chain and what we can command in the marketplace. And of course, in some cases, we have recovery mechanisms to make sure that we're getting our return on our capital. So that's the big picture. We got comfortable on wood fiber after a lot of diligence around the capital cost estimate at this point. And then as I said earlier, the final cost estimate for purposes of our distributions and prefer the churn here will be set sometime next April or thereabouts. So that's sort of the big picture on how we're thinking about the pressures we're seeing in inflation and so forth. But maybe, Vern, you can cover off how the rest of the business is protected.

[Vern Yu, EVP, Corporate Development & CFO]

Okay. Thanks. So on the capital side, obviously, we try to lock in all of our costs as we sanction projects, employee fixed-priced, EPC contracts where we're able to. Our large scale, obviously, allows us very competitive supply chain. And most of the new contracts and commercial agreements that we have announced have cost recovery mechanism should the capital go up. If we move to the OpEx side, I think I mentioned in my prepared remarks that 80% of our EBITDA has protection against inflation. And really, we're seeing that through fixed revenue escalators or the ability to come back for cost of service rate filings, although there is a little bit of a delay there. And finally, I think it's important to point out that most of our costs are fixed. We're a large capital user. So it's not the O&M that's really at risk. We do have some exposure to power prices and labor. On the power price side of things, we have, in certain instances, the ability to flow those costs back directly to customers and then our solar cell power program in the long term provides us a hedge against rising power prices. So I think that covers it all.

[Benjamin Pham, BMO Capital Markets]

Maybe my second question going back to LNG. And as you think about capital deployment for it on LNG exports, is it more of a learning process for you now with Fiber and then executed and constructed with Pacific and then you'll look at potentially other investment or you have appetite for maybe doing something else ahead?

[Al Monaco, President, CEO & Director]

Yes. I think we have appetite. But on the one hand, sure, it's a new area for us. But on the other hand, Ben, we've -- if you look at the execution, we've had large infrastructure. It's been roughly $100 billion over the last decade, so we put a lot of projects into the ground. This, of course, is infrastructure, and it's similar to what we do. So sure, we're going to learn something through the process here, but we'll also look for other opportunities and see if there's something that could fit commercially that, again, addresses the investment criteria that we go after, which is a high degree of predictability. And back to the cost question, we've got enough surety to hear that -- we're comfortable that the project will be strong, and there's a lot of built-in mitigations to how the developer to this point is constructed and designed the commercial arrangements here. So we're happy with that.

[Operator]

Mat Taylor from Tudor, Pickering is online with a question.

[Matthew Taylor, Tudor, Pickering, Holt & Co.]

Yes, just first off, congrats on that, the massive success of that recent ride for cancer in Alberta. So again, well done there. See almost all of us have been impacted by capture in some way. So is close to home there. Nice to see you back in person. Just one question for me. Maybe a question for you, Al. Is there a role for Enbridge to play in owning pipeline infrastructure in Europe as the continent gets tooled away from Russian gas?

[Al Monaco, President, CEO & Director]

Yes. Well, first of all, Matt, thanks for mentioning the ride. I mean, I think it's pretty clear, this is our -- a very center piece of our community initiatives, which we have many, but this really stands out. And some of the people around the tail here today have been involved for a long time. It really is a premier event. So thanks for mentioning that. The short answer is, sure. If you look at the fundamentals around how gas is going to have to be diversified in terms of the sources of supply for Europe, it's an opportunity for us. It always comes down, of course, to whether we can get the right risk/reward profile, just like any other project. The good news is that with the renewables business that we've established there. We have some good experience in Europe. We've got some good partners. We've also been, of course, in Europe before when we had a large investment in Spain. So we're familiar with the neighborhood, if you will. And it will depend on whether we can find something that fits the commercial model we like and return.

[Operator]

Robert Kwan from RBC Capital is online with question.

[Robert Kwan, RBC Capital Markets]

Just thinking about your two-pronged strategy in capital allocation, you've got growing gas opportunities that's evidenced by the numerous secured projects, and you've also targeting the low carbon strategy, you notice it's picking up scheme. So if you think about those opportunities, but your capital discipline and the equity self-funding model that effectively is capital constraining you. To date, you've talked about cherry picking the projects with the highest risk return profiles, but if the portfolio of opportunities within your core footprint and strategy are growing, can you just talk about how you might or might not change your capital allocation priorities?

[Vern Yu, EVP, Corporate Development & CFO]

Okay. Okay. Well, I'll start off, and then Vern can chime in. Well, in a nutshell, Robert, we're not changing the capital allocation framework that I think we're pretty happy with the opportunity it provides, but not only that, it's just the ranking process that we go through to assure that we're generating good value. So as you know, we've got $5 billion to $6 billion that we have available to invest.

And we've said that roughly $3 billion of that is, let's call it, ratable growth, if you want to refer to it that way. So Michele's Utility business, Cynthia's Gas Transmission business and of course, maybe lower capital intensity projects in the liquids pipeline area. So we've got a lot of capacity aside from that $3 billion to deploy and have options to deploy either in new organic projects like the ones we're just talking about today, opportunities for tuck-in M&A. Obviously, share buybacks is on that list. And as you know, Robert, it sort of went up in the order given the current valuation, which we see as attractive for buybacks or of course, you could retain that capacity and pay down debt temporarily.

So if you look at the numbers today, for example, on newly secured projects, it really eats into that $2 billion, but really not that much annually. So we've got a lot of flexibility still to deploy, and we'll continue to be very careful to put that $2 billion to the best opportunities that we see based on that list of options that I mentioned. Vern, do you want to add anything to Robert's question?

Well, I think you hit on the main point, Al. The balance sheet has lots of capacity, that $5 billion to $6 billion per year is very ample and that goes out over many years. The projects that we've recently announced all have spend that are relatively elongated. So in each -- in any individual year, it's not a lot of capital. And then I think as you see us pursue more low-carbon opportunities, generally, the capital associated with those are a little bit lower. We'll have partners with emitters and other indigenous groups and things like that. So I'm not too worried about running out of balance sheet capacity anytime soon here.

[Al Monaco, President, CEO & Director]

Yes. And that's a good point. Actually, if you look at the two-pronged strategy, I think there's a very visible runway here, obviously, with, let's call them, the conventional projects that we've been used to, but you're going to see the ramp-up in lower carbon probably a little bit further down the road, and then it will start ramping up significantly. That's how we see it in carbon capture, whether it's hydrogen opportunities, of course, the renewables business itself has some good legs, but that will ramp up. So in the near term here, combined with that longer-term ramp-up, I think we're well situated with that investment capacity.

[Robert Kwan, RBC Capital Markets]

That's great. And that's actually a good segue into the second question I've got on the low carbon strategy. Historically, you were big in North American onshore wind when the opportunities are pretty plentiful and you easily get double-digit returns, but you slowed that down when the returns were ground down. You actually exited some of those assets, so how do you think about what you did then? And where are we right now with the European offshore wind cycle? And can you maybe just frame where we are with that offshore side against some of those other low-carbon platforms that you just highlighted?

[Al Monaco, President, CEO & Director]

Yes, that's a very good observation. These things go in cycles. And I think we were in a very high development mode on the offshore side. I think what you're seeing is a now a switchover to the point where onshore wind and solar in North America is really perking up, if you want to put it that way just based on a lot of demand for PPAs corporate-type PPAs that we're pursuing. And yes, so the good news here is we're well situated with our own. So solar cell power business as well as opportunities that we see to utilize our land positions. For example, you saw that happen in Ingleside where we're putting in the solar cell power there. So I think that's a broad brush at it, but I'm going to let Matthew chime in here for some more thoughts on it.

[Matthew Akman, SVP, Strategy, Power & New Energy Technologies]

Thanks, Al. I think you hit it, and thanks, Rob. Good observation. So I think the big message is a disciplined approach in renewable, given we recognize there's a lot of capital flows and it can get pretty frothy, so you're right about offshore. We're really fortunate to have a great pipeline, good construction projects, great contracts, leases and we'll build off that, but we're going to be disciplined. On the onshore side, like Al said, the discipline here is development using our advantages, which is we have lands, we have load. And as we talked about at Enbridge Day, we have over 1 gigawatt of greenfield projects. So we're going to focus on the development there. There's lots of demand. I think there are 17 gigawatts of onshore PPAs -- corporate PPAs signed last year in the U.S. So that one is probably trending a little bit better in terms of opportunity, but, again, we've got to maintain the commercial framework and discipline on both areas.

[Operator]

We have reached our time limit and are not able to take any further questions at this time. I will turn the call over to Jonathan Morgan for final remarks.

[Jonathan Morgan, VP, IR]

Sorry, operator, I think we'd like to take a few more calls. So let's continue. Operator, let's continue the call, please.

[Operator]

Linda Ezergailis from TD Securities.

[Linda Ezergailis, TD Securities]

Just wanted to get a bit more context on the outlook for potential extensions and expansions of your mainline given that you are going into apportionment in August, but there is a competing pipeline potentially sub in 2024, which might provide some egress relief for Western Canada. Can you comment on what factors need to be in place to proceed with any sort of initiatives? And provide a color of what the timing and scale could be to help industry?

[Al Monaco, President, CEO & Director]

Okay. Colin?

[Colin Gruending, EVP & President, Liquids Pipelines]

Yes. Thanks, Al. Thanks, Linda. It's a timely question. I think the condition is a good way to put it. The first is a commercial foundation on the mainline itself to provide that clarity and commercial framework to take care of return of capital and return on capital. I think your lay of the land is right. We do expect production over time to fill the Mainline back up. That's dependent on a variety of factors, including policy and producer capital allocation. But we do expect that to occur. And the basin has been vigorous constrained for a couple of decades here.

So I think even beyond the need for physical capacity and be, moreover, the associated net pack [ph] that goes with every barrel, not just the incremental barrel. I think industry will also be looking to Enbridge for optionality and insurance capacity to get to the best markets. So I'd say also we're keeping those expansions of the Mainline and downstream market access pipes [indiscernible]. We've mobilized some early long-lead supply chain, things and permitting parameters to enable that for when it's triggered. So I think there is a continuing joint alignment to make that happen, but there will be some lead time, and we think it will feather in nicely to the disposition profile.

[Al Monaco, President, CEO & Director]

Yes. And Linda, I think Colin's covered it really well. Bigger picture, if you look at the basin in Western Canada, and what's been done on emissions and lowering of breakevens and really sort of setting themselves up for the long term. This good opportunity, at least in our view here, obviously, it's up to the customers to to move volumes up, especially on incremental basis going forward. We know the Permian is really well set up. And that's all driven by exports, particularly for light barrels and product exports. So we're setting up well here for an export-driven environment, especially given what's happened with what we call the inflection point around energy security. So it's setting up well. And it sort of flows into what we'd like to see with respect to the commercial arrangement that we're just negotiating here. And certainly, we could take our time, but there is some level of urgency to make sure that we're providing the service that our customers are going to want. So that's what we're trying to do with the mainline arrangement.

[Linda Ezergailis, TD Securities]

And just as a quick follow-up. Your company has been one of the earlier pipeline companies to pivot to an export orientation, but my sense is your commitment to extension upstream into gathering and processing has been coming on a few times. Just wondering, updated appetite for providing fuller path upstream into gathering and processing, I guess, more on the natural gas side. Are there situations where from a strategic servicing perspective that might be of interest to Enbridge?

[Vern Yu, EVP, Corporate Development & CFO]

Yes. I'll go and then we'll get Cynthia's comment, too. The short answer is we've kind of been there, done that. I mean there's always, I think, some level of strategic rationale you could use to say, underpin projects with gathering and processing, volumes. Our experience on the gas side, it's probably a supply risk profile that we're not excited about taking on again. So I think that's kind of where we are. It makes sense. I don't get me wrong for a lot of companies, but the business model we have really doesn't call for a lot of G&P type in the portfolio. Do you want to say anything else on that, Cynthia?

[Cynthia Hansen, EVP and President, Gas Transmission & Midstream]

Yes. I can just add that we are focused with working with our customers to find those solutions, but it is largely on the transportation side. So that will continue to be our primary focus.

[Operator]

Robert Catellier from CIBC Capital Markets.

[Robert Catellier, CIBC]

I just have a follow-up question on wood fiber on the risk-return profile. I want to make sure I understand it here. Just with respect to construction that's notwithstanding the fact that you've done a lot of due diligence, and it looks like there's a sound contracting strategy in place. Does Enbridge have any exposure cost overruns on the project and if you do need to make an additional contribution is there a mechanism in place where you can earn a return of and on capital for that?

[Al Monaco, President, CEO & Director]

Yes. Well, maybe we should just start with what the negation on the capital cost is in the first place. So at the -- there's two things. At the project level, you've got a fully permitted FID project here. The design and cost estimates are pretty well advanced, and you're dealing with a brownfield site. And of course, as we mentioned earlier, it will be a lump sum EPC contract. So that actually gets triggered in April when we got, let's call it, a substantial amount of engineering design to lock down what we'll call the final estimate. Don't forget here, we've got a modular design and floating storage. So that helps mitigate risk as well.

And of course, pretty much existing pipeline route through the [indiscernible] right of way. So that's the project level mitigation then in terms of the structure of this thing, as we mentioned, it's an equity -- preferred equity structure. So we're not really susceptible to, call it, LNG merchant exposure here. Now -- yes, beyond, let's call it, the final cost estimate sometime in Q2, let's say, next year, there's always execution risk. But remember, by that time, you've pretty much locked everything down to what would be our satisfaction as part of the project execution here with the EPFC contract. So we think that's low, but ultimately, I suppose there could be changes to cost after that point in time.

[Robert Catellier, CIBC]

Right. And then how would the investment responding? Would you get an additional return then on the -- any additional funds as contemplated in the agreement?

[Al Monaco, President, CEO & Director]

No, the return that we earn on the project and the distribution is going to be set, as I said, in Q2. So from there, the return will float. But based on the sensitivities we've done, we don't see a significant variation to the return after that second quarter when all the costs are in.

[Operator]

Andrew Kuske with Credit Suisse.

[Andrew Kuske, Crédit Suisse]

You have a number of irons in the fire on the low carbon side, but I want to specifically focus on CCS and just how big of an opportunity set do you think you're competing for in both Canada and the U.S. on the CCS front?

[Al Monaco, President, CEO & Director]

Well, that's a broad question, Andrew. It's a good one. I'm not sure we have a great answer in terms of the ultimate size. I do know that we're pretty well positioned. And basically, if you look at where the high-intensity areas for carbon capture will be, it's basically where we are. Number one, obviously, in Alberta, we're advancing a project there. As we mentioned earlier, in terms of export capabilities in the Gulf Coast, that's another area of opportunity. We've got, obviously, a big position in Eastern Canada and concerning area [ph]. So I think at this point, we're sort of developing options and opportunities there, but we haven't put a figure on that potential. I think the main thing is we've got a natural advantage because we're in those areas, and we'll just have to see what projects pop out of.

[Andrew Kuske, Crédit Suisse]

Okay. I appreciate that. I'm going to take it from the really broad to maybe a little bit more narrow, but not too narrow. Just on the tax support side in both Canada and the U.S. with emerging credits into the future, whether it be in the Canadian regime or the most recent inflation Reduction Act proposal earlier in this week, how do you think about the tax credit environment? And what do you really need to see the industry be spurt along?

[Al Monaco, President, CEO & Director]

Well, certainly, on both sides of the border, we're much happier with what's happened certainly in Canada with the investment tax credit. I think that's going to be very helpful to get these projects moving. And as you know, we need to see action on carbon capture right way. And so that will help. Remember though, in Canada, it's also about ensuring that there's a price of carbon that producers can have clarity on. So we'll have to make sure -- they'll have to make sure that they're getting the right revenue profile related to carbon. In the U.S., certainly, yesterday's announcement, if all things go through as was announced, moving that $45 Q number up to sort of that $85 mark, and including both Blue and hydrogen. As part of that, I think that's very positive. So the bottom line is, in order to achieve the emissions targets that we have, both societally, globally, and as well in North America, we need to have carbon capture. So I think that's now being recognized, and this will help get investments off the ground.

[Operator]

Patrick Kenny from National Bank.

[Patrick Kenny, National Bank Financial]

Lots of discussion on inflation already, but just on the potential T-South expansion given the $2.5 billion price tag has been out there for a while. Obviously, a lot has changed on the construction front here since Enbridge Day. And I appreciate there's now a plus sign added to the $2.5 billion estimate, but perhaps at a high level, if you could comment on what gives you confidence that the budget on your T-South expansion or even the T-North expansion won't spiral out of control like we've seen from some of the other larger scale developments in BC.

[Al Monaco, President, CEO & Director]

Okay. We're going to give that to Cynthia.

[Cynthia Hansen, EVP and President, Gas Transmission & Midstream]

Yes. Thanks, Patrick. I think Al kind of touched on this earlier in his comments. We do have, obviously, some pretty extensive experience in managing capital projects of this size, and you heard Vern go through all of the things that we do when we get into project development to lock in our costs as soon as we can. I would say the other thing, just to note, though, on the T-North and T-South system in particular, is that those are cost of service regulatory regime. So we're going to do everything that is prudent to control costs, but at the end of the day, our exposure is pretty limited when it comes to our total capital spend.

[Al Monaco, President, CEO & Director]

I think that's right, Patrick. The only thing I'll add on that is going back to what we have in the ground here. And these days, it is about pipe in the ground. So to the extent we can add compression or do some minor looping and you're doing that in your right of way and where you have existing relationships with indigenous groups. That's part of the equation here to try and manage costs as best we can. Of course, there's inflation pressures. But I think we're in decent shape with all as Cynthia said, and then the fact that we're in the existing right of way helps.

[Patrick Kenny, National Bank Financial]

Great. I appreciate that color. And then just as a follow-up on the CCS Hub, any update on potentially coming in to invest alongside your customers there on the capture infrastructure part of the value chain. And I can't recall if whether or not they select Svante's technology plays any factor in your interest level to invest upstream on CCUS?

[Al Monaco, President, CEO & Director]

Yes, that's a good question. Colin, do you want to...

[Colin Gruending, EVP & President, Liquids Pipelines]

Yes, Pat. I think the answer is yes with the command then like saying a morning subject to the right commercial model. So the full value chain does interest us strategically. Our focus is primarily on the pipe and storage at this point, but we remain open to the upstream element you talked about subject to the right conditions.

[Al Monaco, President, CEO & Director]

It's a little bit like what we said before. It's still infrastructure, so that interests us. And as we've indicated, this is all about cost. And so to the extent we can bring our expertise to the extent we can bring, let's call it, the utility-like model to infrastructure, including, I guess, capture, it could make sense, but that will have to depend on how our partners feel about it, too.

[Operator]

We have reached our time limit. We are unable to take any further questions at this time. I will now turn the call over to Jonathan Morgan for final remarks.

[Jonathan Morgan, VP, IR]

Great. Thank you, and we appreciate your ongoing interest in Enbridge. As always, our Investor Relations team is available following the call for any additional questions you have. And once again, thank you, and have a great day.

[Operator]

Thank you. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.