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Enbridge (NYSE: ENB) stands as a prominent entity in the crude oil transportation sector, overseeing the most extensive and intricate oil and liquids transportation network across North America. The company is responsible for the movement of approximately 30% of all oil produced on the continent.
This Canadian pipeline and utility company believes that its assets for transporting crude will remain essential for the economy for many years to come. With an expectation that oil demand will continue to increase through at least 2050, Enbridge is well-positioned to sustain and potentially grow its dividend yield, which has already remained steady for 29 consecutive years, hovering close to 7%.
Optimistic Forecasts for Global Oil Demand
Enbridge’s CEO, Greg Ebel, has a particularly optimistic outlook regarding the future of crude oil demand, suggesting in a recent interview with Bloomberg that it could reach levels “well north” of 100 million barrels per day (BPD) by 2050, and possibly exceed 110 million BPD. This contrasts starkly with predictions from the International Energy Agency, which foresees a decline to about 97 million BPD by the same year. Ebel attributes this anticipated increase in demand to a strengthening global economy, particularly in developing regions.
This bullish outlook is promising for Enbridge’s operations, as the company earns revenue through a fee-based model that relies on the volume of crude flowing through its extensive network of pipelines, operating storage terminals, and export facilities. Approximately half of Enbridge’s earnings are currently derived from its liquids pipeline business, a figure slightly reduced from 57% the previous year following its acquisition of three natural gas utilities from Dominion.
If the company’s projections hold true, it can expect a steady influx of crude volumes through its pipelines for years to come, creating opportunities for significant cash flow generation. Despite current investments being relatively modest at $300 million across three projects, Enbridge is actively pursuing expansions, including a 120,000 BPD increase to its Gray Oak pipeline and the construction of additional storage capacity at its Enbridge Ingleside Energy Center.
Moreover, Enbridge sees additional prospects for growth, including plans to enhance capacity on its Mainline oil pipeline system in Canada by up to 150,000 BPD and exploring opportunities to expand its export capabilities—an area Ebel believes is critical for North America’s future in oil.
Diversification Strategy
Despite its optimistic stance on crude oil demand, Enbridge is taking steps to mitigate risks associated with over-reliance on its liquids pipeline business. The company has been diversifying its portfolio, significantly bolstering its gas transmission operations since acquiring Spectra Energy in 2017 for $28 billion. This sector now contributes a quarter of total earnings, a figure that is set to rise further due to numerous expansion initiatives, which include the development of new gas pipelines and an investment in a liquefied natural gas (LNG) export terminal.
This year, Enbridge is incrementally completing its notable gas utility acquisitions, which will enhance the proportion of stable gas distribution earnings from 12% to 22% of overall income, a trend expected to persist as the company continues to invest heavily in expanding its gas distribution and storage capabilities.
Additionally, Enbridge is growing its renewable energy portfolio, which currently represents around 3% of earnings but is on a growth trajectory. The company is developing several onshore renewable energy initiatives in North America and engaging in large-scale offshore wind projects in Europe, alongside other lower-carbon energy ventures such as carbon capture, blue ammonia, and green hydrogen.
Dividend Assurance and Future Outlook
With a projected robust oil demand over the coming decades, Enbridge believes its liquids pipeline segment will continue to be a significant source of cash, enabling ongoing dividend payments. The company also aims to leverage these revenues to expand its renewable energy business and lower-carbon projects, fostering a sustainable growth strategy.
Investment Considerations
Before considering an investment in Enbridge, potential investors should evaluate their options. While the company has been recognized for its stable dividend, it is noted that various investment analysts currently do not recommend Enbridge among their top picks in the energy sector, suggesting alternative stocks that may offer enhanced returns.
Ultimately, Enbridge’s strategy combines solid fundamentals in crude transportation with a thoughtful diversification into renewable energy, positioning the company favorably for future growth while maintaining its commitment to shareholder returns.
Source
finance.yahoo.com