Enbridge Earnings: With Mainline Settled, Pressure Grows on Trans Mountain Pipeline Expansion

Enbridge’s ENB second-quarter results met our expectations. The firm reaffirmed its 2023 EBITDA guidance of a midpoint of CAD 16.2 billion, whereas we continue to think there’s some volume and fee upside to our forecasted CAD 16.3 billion. After updating our model, our CAD 52 and USD 39 per share fair value estimates and narrow moat ratings remain unchanged.

With its recent settlement over its Mainline contracts (see our May 4 note for more details), we think Enbridge is increasingly in the driver’s seat ahead of the competing Trans Mountain expansion entering commercial service in early 2024. With the Trans Mountain pipeline expansion costs spiking to over CAD 30 billion and the Canadian government facing a massive loss on its investment (see our July 18 note for more details), the underlying advantage of the Trans Mountain pipeline expansion offering a cheaper and more efficient pathway for Canadian barrels to move to export markets compared with the Mainline is increasingly under siege.

With that in mind, we think Enbridge is pressing its advantage. The Mainline settlement lowers tariffs effective July 1, maintains the monthly common carrier system, and extends terms to the end of 2028. At the same time, returns for Enbridge are protected via a collar, and shippers are now committed to Mainline before the Trans Mountain pipeline expansion enters service. Enbridge management has been trimming its estimates of near-term impacts from the competing pipe entering service consistently over the last 18 months. Now, Enbridge is seeing record Mainline volumes, and is sanctioning new investments, such as the Houston Oil terminal, and likely the Flanagan South pipeline, providing more options and capacity for shippers to move barrels down to the Gulf Coast for export along the full pathway of the Mainline.