Pembina Pipeline Corp

TSX:PPL

Earnings Call Transcript 2021-Q2

[Operator]

Good day. Thank you for standing by, and welcome to the Pembina Pipeline Corporation 2021 Second Quarter Results Conference Call. [Operator Instructions]I would now like to hand the conference over to your speaker today, Cameron Goldade, Vice President, Capital Markets. Thank you, sir. Please go ahead.

[Cameron Goldade, Vice President of Capital Markets]

Good morning, everyone, and welcome to Pembina's conference call and webcast to review the highlights from the second quarter of 2021.On the call with me today are Mick Dilger, President and Chief Executive Officer; Scott Burrows, Senior Vice President and Chief Financial Officer; Harry Anderson, Senior Vice President and Chief Operating Officer, Pipelines; Jaret Sprott, Senior Vice President, Chief Operating Officer, Facilities; Stu Taylor, Senior Vice President, Marketing and New Ventures and Corporate Development Officer; and Janet Loduca, Senior Vice President, External Affairs and Chief Legal and Sustainability Officer.I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Pembina's current expectations, estimates, judgments, and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties, which could cause actual results to differ materially from expectations. Further, some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see the Company's Management Discussion and Analysis dated August 5, 2021, for the period ended June 30, 2021, which is available online at pembina.com, and on both SEDAR and EDGAR.With that, I'll now turn things over to Mick.

[Michael H. Dilger, President, CEO & Director]

Thanks, Cam. Good morning, everyone. We are pleased yesterday to announce that based on the year-to-date results and the outlook for the remainder of the year, Pembina has updated its 2021 adjusted EBITDA guidance by raising the low end of the range. Adjusted EBITDA is now expected to be $3.30 billion to $3.4 billion, effectively positioning us in the upper half of our original guidance range. Similar to what we have seen in our year-to-date results, growing confidence in our 2021 outlook reflects stronger-than-expected full year marketing results, net of significant realized hedging losses, and modestly higher volumes across many of Pembina pipeline systems and facility. Relative to our original guidance range these positive factors are being partially offset by stronger-than-expected Canadian dollar relative to the U.S. dollar, increased operating costs due to higher integrity spending, and higher power costs in the conventional and oil sales pipeline businesses, and lower contributions from certain assets.In addition, the revised outlook reflects higher general and administrative expense due to Pembina's rising share price and the resulting increase in the long-term incentive compensation cost. While supporting Pembina's 2021 guidance update, stronger commodity prices and rising volumes also mean Pembina's customers are in ever better financial positions, generating significant free cash flow and improving their balance sheet, with many reaching their leverage targets earlier than expected. This sets the stage we believe for increased drilling activity and increased capital spending by producers into 2022 with positive implications for Pembina's business. Constructive outlook for the WCSB and customer demand for incremental service led to the reactivation of the Peace Phase 9 pipeline expansion to supporting customers' long-term development plans, while further -- furthering product segregation on the Peace pipeline system.Further decisions on the Peace 8 Pipeline Expansion and the Prince Rupert terminal expansion are expected later this year. The same outlook also supports our confidence in the development of a portfolio of growth projects totaling more than $5 billion. This quarter, Pembina announced 3 significant and transformational and strategic partnerships with compelling ESG attributes. A partnership with the Haisla Nation to develop the Cedar Peter LNG project, a partnership with TC Energy Corporation, which envisions development of the Alberta Carbon Grid, and Chinook pathways, a partnership with the Western indigenous pipeline group to pursue ownership of the Trans Mountain pipeline once that project is derisked. Collectively, these partnerships support Pembina's global market access strategy, allow for meaningful indigenous participation in the Canadian energy development and provide important large-scale infrastructure platform to assist Alberta-based industries to manage their greenhouse gas emissions and contribute to a lower-carbon economy. We are proud of this work with communities and our role in creating meaningful solutions.Finally, in recent weeks, Pembina announced and ultimately terminated its proposed acquisition of Inter pipeline. The industrial logic of a combined Pembina and Inter pipeline remains unparalleled and the value creation between certain of our assets is impossible to replicate. While we are disappointed with this outcome, we will continue to seek opportunities for growth through focused acquisition. I say that not as a signal for any imminent or specific targets, but as a reminder that such acquisitions have been part of Pembina's success story over many years and will continue to be. The execution of Pembina's long-term strategy is never reliant on a single investment. The record continues to show that while acquisitions may be a tool to execute our strategy, we will remain disciplined in prioritizing shareholder returns on our financial guardrails. But for now, we are enjoying the receipt of a $350 million termination fee. We're studying the options available to best invest the termination fee, including business reinvestment, debt repayment, and share buybacks.With that, I'll pass it over to Scott to discuss the financial highlights.

[J. Scott Burrows, Senior VP & CFO]

Thanks, Mick. Pembina reported adjusted EBITDA of $778 million for the second quarter, 1% lower than the same period last year. Within our core business segments, we saw a strong performance from existing assets, along with Prince Rupert Terminal, Empress infrastructure and Duvernay III being placed into service and facilities and higher interruptible volumes on the Peace Pipeline system. In the marketing business, Pembina benefited from higher margins on NGL and crude oil sales and the positive impact of higher marketed NGL volumes. However, a portion of this improvement in marketing fundamentals was offset by an increase in the realized loss of commodity-related derivatives as part of our systematic hedging program compared to a gain in the same quarter last year.In addition, second quarter marketing results were negatively impacted by approximately $8 million of rail transportation costs to reposition propane to corona for sale in the fourth quarter of 2021 and the first quarter of 2022, rather than for a sale in the second quarter. Further, a portion of the period-over-period differences are due to the timing of storage-related margins as the majority of 2020 storage margins were earned in the second quarter of 2020 compared to 2021 where storage margins are being realized evenly throughout the year. Improved overall results in the marketing business were offset by a lower U.S. dollar exchange rate, higher power costs, a portion of which were not recoverable in revenue, and higher general and administrative expenses due to higher long-term incentive costs driven by Pembina's increasing share price. It is worth noting that in 2021, specifically, each $1 move in Pembina share price impacts compensation-related expense by about $2 million. As well, comparatively, the current quarter was impacted by lower revenue at the Edmonton South Rail terminal due to a one-time $11 million leasing adjustment made in the second quarter of last year that resulted in that quarter being better than it would have otherwise been.In contextualizing our second quarter and year-to-date results as well as our outlook for the full year 2021 adjusted EBITDA, it is worth pausing on the impact of changes in foreign exchange rates. Approximately 25% of Pembina's business is exposed to foreign currency, primarily the U.S. dollar. This exposure primarily resides in our transmission assets in the pipeline division as well as our marketing business with the primary pricing benchmarks for the purchase and sale of commodity products occur in U.S. dollars. As part of Pembina's frac spread hedging program, we hedge the currency exposure embedded in those hedges. Over the last 12 months, the Canada, U.S. dollar exchange rate has exhibited significant volatility. During the second quarter of 2020, the Canadian dollar averaged nearly $1.39, while in the second quarter of 2021, it averaged nearly $1.23.For the balance of 2021, for each $0.01 change in the Canadian U.S. exchange rate, it equates to roughly $6 million of adjusted EBITDA, with $2 million being attributed to the transmission assets and $4 million attributable to the marketing business. Furthermore, given the seasonal profiles of our marketing business, these sensitivities will vary when applied to quarterly results. Second quarter earnings of $254 million were 2% lower than the same period in the prior year. In addition to the factors impacting EBITDA, earnings were positively impacted by a lower unrealized loss on commodity-related derivatives and lower current tax expense as well as various other factors outlined in our second quarter report. Total volumes of 3.5 million barrels per day for the second quarter represent approximately a 2% increase over the same period in the prior year. In pipelines, higher interruptible volumes on Peace and Cochin Pipelines as well as higher seasonal volumes on Alliance, were offset by lower interruptible volumes on Vantage as market conditions exist for end-users to source their supply from the redwater complex, and lower volumes on Ruby pipeline due to contract expiry.In facilities, increased revenue volumes associated with Duvernay III being placed into service in the fourth quarter of 2020 was largely offset by lower supply volumes on the East NGL system, as these assets are now being processed at the Empress NGL extraction facility. Overall, however, as Mick highlighted, we have seen strong year-to-date results and our outlook for the remainder of the year and into 2022 remains very positive. Reflecting a stronger economic backdrop, robust energy prices, and improved outlook for producer activity levels.I'll now turn things over to Mick for closing comments.

[Michael H. Dilger, President, CEO & Director]

Thanks, Scott. In closing, what has emerged over the course of an exciting past few months reflects continued progress towards a clear vision for Pembina's future. Our ambitions are being realized and we look forward to continuing to build out our diversified and integrated value chain, providing an exceptional customer service offering, including global market access for their products. At the same time, we remain committed to providing industry-leading total shareholder returns, including a stable and growing dividend, and furthering our ESG strategy, collectively in service of our employees, communities, customers, and investors. We'd once again like to thank all of our stakeholders for their support.And with that, we'll wrap things up. Operator, please open up the line for questions.

[Operator]

[Operator Instructions] Your first question comes from Ben Pham from BMO.

[Benjamin Pham, Analyst]

I wanted to -- first are up Carbon Grid. When you first announced that project that referenced the time with the inter pipeline acquisition. You set up that project in your package this morning. So is that still an opportunity for you regardless of your not moving forward in IPO?

[Michael H. Dilger, President, CEO & Director]

Yes, it is.

[Benjamin Pham, Analyst]

Okay. Okay. So and then to give any comments on the USRF strategy, hedging, natural hedges, how you think about that going forward.

[Michael H. Dilger, President, CEO & Director]

Ben, can you repeat the question? Sorry, we had trouble hearing you.

[Benjamin Pham, Analyst]

Yes. I had a question about the U.S. star FX strategy or hedging strategy. Actually, do you think about the sensitivity of seronegative rubles? And how do you think about that next 6 to 12 months?

[Cameron Goldade, Vice President of Capital Markets]

Yes. Ben, I think as we think about the U.S. dollar, I mean, for some time, we've been talking about diversification of currencies as being core to our strategy. And through that, looking at a global -- a more global enterprise and that naturally occurring. So part of our strategy there has been, obviously, to hedge the marketing cash flows because across the board including the commodities as well as some of the foreign exchange on the frac spread business, noting that that is some of the more variable cash flows in our business. At the same time, we have been, in the past, having a reasonably large U.S. dollar-denominated capital spend as well. And so we've always been somewhat naturally hedged, a little bit less so in the last couple of quarters, which is why we've left the currency unhedged. But as we look forward, I mean, it's always something that we're thinking about as we execute our strategy.

[Benjamin Pham, Analyst]

And then maybe to close off on acquisitions. I'm curious, like what do you think the biggest sources of acquisitions could be for you the next couple of years even more consolidating the Canadian side some of those Canadian assets have come up U.S. exposure. But now as you look at the landscape, there's just not many names up in Canada. Do you need to go to the U.S. more? Is there still a lot of opportunities that you see in Canada versus tuck-ins? Like what's the thought process in the next couple of years?

[Michael H. Dilger, President, CEO & Director]

Listen, we're focused on -- we've talked about advantage Canada. We believe that. I think it's playing out very well for us. And the nice thing about Pembina is we're right in the middle of everything. So everything we look to acquire, we have tremendous synergy with. So -- but I think most importantly, you can only buy things that are for sale. So we have and continue to look at everything and see what has the biggest strategic importance to us which generally relates to vertically integrating our value chain and pushing to tidewater on all products. So things that help us realize those 2 goals are most in scope.

[Operator]

Your next question is from Shneur Gershuni from UBS.

[Shneur Z. Gershuni]

I'll start off with a discussion about PDH. Just sort of following the IPO merger that given the fact that it's still longer proceeding. Just kind of thinking -- I'm just wondering actually how we should sort of be thinking about your PDH needs with respect to Pembina? Do you consider potentially pursuing a JV option with Brookfield to build those? Are you sort of looking at kind of the amount of volume that you control? Can you potentially get an equity stake in a project through an NEBC? And just kind of wondering what the strategy is kind of on a go-forward basis and how you're thinking of that? And I truly recognize that you're probably very early in the process right now.

[Michael H. Dilger, President, CEO & Director]

Yes and no. I mean when we laid down the hammers on PDH the first time, it was really because of the pandemic and the lump-sum turnkey contracts got away from us. But we never said that project was canceled. We said it was suspended. We set LNG and value-added projects remained in strategy. And so if you zoom out from that for us to get products to tidewater, sometimes we need to turn them into something different. So we're trying to create demand for our customers' products. And that might be direct export of propane or turning propane into propylene or propylene into polypropylene and then exporting it or -- so it's all about the same route. To the extent, we can build fee for surface infrastructure in the petrochemical business. That's an avenue for us to create local demand and get our customers' products to the highest value markets. And sometimes that's the product in its current form. Sometimes you got to liquefy methane to move it. So all that remains in scope for us, but it has the same route, which is we think that hydrocarbon demand long after North America stabilizes and we don't know when peak demand is in North America. But long after that, there'll be growing demand internationally, and we need to connect our world-leading base into that demand.

[Shneur Z. Gershuni]

So the point is that you're probably still pursuing this option? Is that kind of the good way?

[Michael H. Dilger, President, CEO & Director]

Yes. We've stated LNG and value-added projects, including production of polypropylene provided they meet our guardrails. They are petrochemical infrastructure and not necessarily being in the commodity chemical business. They remain in strategy, yes.

[Shneur Z. Gershuni]

And maybe just pivot to a quick discussion about your guidance that you just laid out. From our perspective, Tv is a bit of a challenge. But yet, you definitely have raised your guidance for this year. I'm kind of curious what you're thinking about with respect to your kind of your exit rate for 4Q as we sort of think about what that means as we set up for 2022?

[Michael H. Dilger, President, CEO & Director]

Yes. I mean we think we're building through the year. I think our -- clearly, the -- raising the lower end is a good thing. I know some analysts were hoping we would raise the top in. But it's still pretty early in the year and I sure don't know what I'm going to read in the newspaper next week, and so there's still a lot of moving pieces. We just didn't think that was compelling evidence to do more than what we've done, but we're definitely building through the year. Some of the quarterly results I've read, I think like CNRL, I think they bumped their capital spending for the year. So we're starting to see people drill one extra pad, for example, and one pad can be 100 million day of gas and 20,000 barrels a day of liquids so those things matter. And people are reaching their debt targets earlier and they're buying back their shares, I'm talking about our customers. But as the generalists step into this space and share prices go up, at some point, there's a tipping point where producers are going to start to drill because that's a better investment than their shares. When they're trading at 3x or 4x cash flow, you can't blame them for buying back their shares. But lots of wells have 100% rate of return too. so, when that tipping point is, we don't think it's necessarily now until debt targets have been reached, but we think for a lot of producers that's going to change. And I'm kind of waiting for 2022 capital guidance like a kid waiting for Christmas because I think it's going to be pretty exciting to see what the basin does next.

[Shneur Z. Gershuni]

So the key takeaway here is that we should -- outside of seasonal factors, which are always there. We should, on the base business, we should seeing sequential improvements like 3Q versus 2Q, 4Q versus 3Q, and it sets up for '22 if this tipping point that you just articulated comes to fruition, is that kind of a fair way to think about it?

[Michael H. Dilger, President, CEO & Director]

Yes, that's how I think about it. I mean you heard the forward-looking information waiver, a lot can happen and it's a crazy world we're right now. But yes, and listen, our second quarter is usually our weakest quarter. Last year was kind of anomalous because we made all of our storage revenue in one month versus kind of rateable through the year. so, we feel pretty good about the way the year is going to finish. We're seeing some nice signs like alliances back in the money. The basis differential, we haven't seen that. The dollar -- Canadian dollar actually dropped a little bit, I think from the end of the second quarter, oil prices are stabilizing around 70 U.S. So there's some positive things going on that had us raise the low end of our guidance. But like I said, it was just a little early, I think, with -- given what we're reporting now to go beyond that. I think our raising the low end of our guidance was prudent.

[Operator]

Your next question is from Robert Kwan from RBC Capital Markets.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

Some back to how you're approaching or how you approach acquisition? You had IPL and other corporate deals, you have it's kind of fairly seamless. I know there is some friction, but seamless where the equity gets placed. As you think about doing discrete asset deal where let's say, the seller doesn't want to take equity, how much does the financing size factor into the magnitude of what you pursue just from that deal size perspective?

[Michael H. Dilger, President, CEO & Director]

I'll just give you my layman's perspective, and then I'll turn it over to Cam and Scott, who have a much deeper knowledge. But if you look at the kinder, I'll give you a real-life example. I mean the bid-ask spread with kinder after -- it was close to a year of negotiating was really conquered by the seller taking our equity. That was, I think, $100 million, give or take at that point and that was a bit of spread. So those are important dollars to retain between the buyer and the seller. And if you look back at all of our large acquisitions they've been funded with Pembina equity. And if you look back -- things went well for the people who took our equity, they generally got $1 on the dollar or maybe at a point of leakage. But often, they actually held a little wall and made money. Some of the happiest shareholders I have the privilege of meeting our -- came in at provident, and they've really, really rung the bell, and they have really low ACVs. And I would hazard to say if we had to close interpipe a bunch of those shareholders would have been very happy as well as the synergies unfolded. So it's an important part of value sharing between buyers and sellers. Cam or Scott, do you have anything to add to that?

[Cameron Goldade, Vice President of Capital Markets]

Maybe I'll just jump in here. I mean obviously, Robert, to the extent that we do anything in the public market, there's pretty significant friction costs that come along with that. So our preference has always been to work directly with sellers and use our shares directly. But backing up a step and I think answering the question more directly as it relates to kind of discrete assets. I think from our perspective with access to the equity markets, the debt markets, hybrids, preps. What I can say is that we haven't run across a transaction that's been inhabited by our ability to access capital. We feel pretty comfortable and not just our own opinion, but advice of our third-party advisers, our ability to raise pretty significant capital. Now that being said, I think what has evolved over the last couple of years is our thinking around capital recycling. So to the extent that we are limited by capital markets or it makes sense. We have options as it relates to capital recycling. And also over the last couple of years, we've developed some pretty significant relationships and could look at various partnerships or JV opportunities as well to help bridge finance it. So all that to be said, it's certainly something that we think a lot about, but to date, haven't run into any major roadblocks as it relates to that.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

Just as part of the guidance, you had a quote tempering what you did just with lower contribution or expected lower contribution from certain assets. Just wondering which ones are you referring to specifically and maybe as part of that, can you just give some comments on the review situation?

[J. Scott Burrows, Senior VP & CFO]

Sure. I think as we look at Q2 specifically, we had slightly lower contributions as it relates to Ruby. Alliance volumes were okay. I think the interruptible tools and were slightly lower. Our kinder tanks had slightly lower revenue this quarter. And as we stated previously, there was some lower interruptible volumes on Vantage. So I wouldn't say, Robert, it was any kind of one specific asset. It was kind of a small amount across a couple of different assets.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

And if I can just finish with the question here on hedging. I think the '22 hedges based on your disclosure were all added either in Q2 or subsequent to the quarter if you had additional activity. Can you just frame as best you can, what that pricing looks like for '22, I don't know if you can just do it against elimination of the realized losses that you've had on the hedge book today?

[Michael H. Dilger, President, CEO & Director]

I was just going to say, I think your point is accurate in terms of when those hedges have been added. And you can look across the frac spreads for Q2 relative to Q1 and recognize that they've been fairly consistent on a ratable basis and I think that's a good proxy for where the numbers are. And then just looking forward to the realized losses, I think a bit about your answer, but to put into context, the losses from this year have been realized, obviously, for hedges that were put on sort of throughout the balance of 2020 through until really the end of October of 2020 on a relatively ratable basis. And if you look back, those levels are sort of close to half of where we are today. So I think that gives you a bit of a framework of how the losses might calibrate what we're seeing currently and looking forward to 2022.

[Operator]

Our next question is from Robert Catellier from CIBC Capital Markets.

[Robert Catellier]

Most of these are going to be follow-ups, but I wondered if you could provide a little bit more color on the best use of the break fee? On the one hand, you have a lot of projects you could do internally. Some of the major projects have long development cycles. So at what point does it make more sense to just buy back the stock Micky was suggesting? And one of the projects hits that you can always finance later. I just wonder if you could provide more color on really the best use of the break fee in the next 6 months?

[Michael H. Dilger, President, CEO & Director]

Robert, it's the same debate we always have internally. The finance guys want to pay off debt and I want to invest it in future projects and others want to support the stock because we think it's -- the yield is very high, and it's a little underappreciated. So that debate is alive and well. And I think we're sitting down as a management team and really assessing the -- how and when our business grows, it would be a shame to buy back stock and then pay a big commission kind of further to Robert Kwan's comment, pay a big commission to raise new money. You'd look a little foolish then. On the other hand, it's kind of a windfall, and we weren't counting on that money 90 days ago, and here it is. And so have some fun with it. So -- but we don't know, honestly, every use is a good use -- among the 3 choices.

[Robert Catellier]

A little bit more of a detailed question here, but just on the Alberta crude terminal capacity, can that be repurposed or, for example, for biofields or anything else, so what's the plan there?

[Cameron Goldade, Vice President of Capital Markets]

Yes, great question. It can be repurposed, but I think as we've talked about, it's under long-term contract with our partner there. So obviously, that would be subject to negotiated arrangements with our partner.

[Michael H. Dilger, President, CEO & Director]

Yes. I mean it's way underuse, Robert. I mean you're spot on. It's a shame the rate of underutilization of that asset. So that's on our to-do list.

[Robert Catellier]

And just last question there. Given the change in basis differential, have you seen much improvement in activity on Alliance -- not the volumes, but the recontracting efforts?

[Cameron Goldade, Vice President of Capital Markets]

Yes. We're seeing really positive signs even before probably more of the shorter-term improvement in the basis. So we've seen an uptick in interest. So feeling directionally really positive about it, Robert.

[Michael H. Dilger, President, CEO & Director]

Yes, it's kind of fitting like -- it's always hard when you got a little pinch. But if you look back over a long period of time, that pipes in the money. Particularly when you consider the valuable cargo of NGLs it carries, that's a great pipe. It's unique and things tend to revert to the mean there. So we'll -- it is nice, though, to see it come back in the money. I'm not going to lie, but it's doing what we expected.

[Cameron Goldade, Vice President of Capital Markets]

On a more macro basis, we feel really strong in some of the structural advantages that Alliance has 10 Bcf LNG facility still being constructed and commissioning and I think our longer-term perspective. And this perspective we're seeing from the market is that the U.S. is going to be on a net basis with LNG exports short. So we feel like Alliances in a longer-term basis is a really positive structural position.

[Operator]

Your next question is from Patrick Kenny from National Bank Financial.

[Patrick Kenny, Managing Director]

Maybe just to start with some of the higher maintenance and integrity costs in the quarter. Just curious if there were any unforeseen geotechnical issues or any acceleration of activities that might actually reduce integrity expense going forward?

[Cameron Goldade, Vice President of Capital Markets]

On the geotechnical perspective, Patrick, there have been no surprises. I think given the relatively dry spring season we had, it's been good from that perspective. The integrity work was really a rollover of some deferred work from last year that we were working through with our integrity group to get our heads around on when the spend needs to happen. And then on the operating cost side, it's all driven by Alberta power costs pool prices.

[Patrick Kenny, Managing Director]

And maybe on that front. So Scott, thanks for the FX sensitivities. But just on the power cost exposure, it looks like about 2/3 of your power costs are flow-through, if I'm reading that correctly. But maybe just some color on how far you're able to go out and hedge the remaining 1/3? How you might be thinking about mitigating your longer-term exposure, perhaps a refresh on other cogen opportunities across the portfolio, that would be great?

[Jaret A. Sprott, Senior VP & COO of Facilities]

Pat, Jaret here. With respect to the Cogen. So yes, you're fairly accurate in the 2/3 that is recoverable. The Cogen that's going in at Empress, so that is a Pembina marketing asset. So once that's in service, Q4 2022, that will mitigate a significant chunk of power there and exposure to those costs. We're also -- well, we have 2 other sites that we're actively pursuing the engineering and doing our front-end feed in our gas processing business with Cogens, which will mitigate another pretty big chunk of power. And then I'll let's do talk about the recent PPA that we signed go forward that will help mitigate those costs in the future.

[J. Scott Burrows, Senior VP & CFO]

Patrick. So yes, we're really pleased working with TransAlta on our first PPA contract, 100 megawatts of power. We obviously really like the pricing. And at the same time the credits and the benefits that will come with that, that power is being built. We are on some short-term benefits and some additional power that are coming in, and we'll grow from 50 megawatts to 100 megawatts over the next 2 years. So we're excited about the first 100 megawatts. We are active in conversation for additional PPA contracts. We believe it's beneficial to lock those in. We're seeing some positives on the pricing side, particularly when it relates to the recent uptick in the power pricing that we've seen. So we're very active on the larger scale power PPA contracts. We're looking at smaller opportunities as well as we look at some of our assets. And Jaret's mentioned some of the Cogens, but there's additional opportunities to pursue what we believe is some cheaper power pricing for Pembina's assets for the -- for both the benefit of Pembina itself and our customers.

[Patrick Kenny, Managing Director]

Last one for me, just on the Cedar LNG. Just curious how the coastal Gaslink cost overrun might jeopardize the economics and I guess your chances of reaching a positive FID on the project. I know you still have until 2023 to make the call, but given it's a very fluid situation right now. Any color on how sensitive the $3 billion capital cost and overall returns might be to the pipeline project itself that would be great?

[Cameron Goldade, Vice President of Capital Markets]

As we went in -- obviously, we were aware of the challenges that coastal Gaslink was experiencing. We've factored in that into the economics. We still believe the Cedar LNG project, the benefit of a floating LNG project, our ability to have that built-in a, I'll call it, a lump sum environment overseas to bring that here, the uniqueness of the size and the great work done by the Haisla in securing that capacity. We take into account, Patrick, the -- some cost increase there. We are working closely with obviously, LNG Canada as the major contractor on the Coastal Gaslink pipeline, working -- there'll be many conversations with Coastal Gaslink themselves, but we've taken that into account, the economics. And still believe cedar is economically advantaged from a cost structure perspective of delivering LNG into the Asian markets on a go-forward basis. So, as you said, we've got lots of work to do as we work through the feed engineering, there will be many conversations over the next little while. I believe those will be intense and accelerated as there's a lot of money on the ground already from many, many people. And so we're actually watching, but we do enjoy the benefit of the great work that the Haisla in securing the capacity and the commercial arrangements on Coastal Gaslink.

[Operator]

There are no further questions in queue. I would now like to turn the conference back to Mr. Mick Dilger for closing comments.

[Michael H. Dilger, President, CEO & Director]

Well, thanks, everybody, for your support through the corn call at the IPL Saga. Thanks to all my colleagues here for the great work. It wasn't what we hoped for as I mentioned, but it was still a good outcome for us. And I think it was kind of a window into the future for Pembina and all the things we can do and we'll be focused on over the years to come. So have a great summer, everybody, and hope to see you in person sometime soon.

[Operator]

This does conclude today's conference call. Thank you for your participation. You may now disconnect.