Enbridge bets big on natural gas with $9.4-billion acquisition of three U.S. utilities

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Canadian pipeline giant Enbridge Inc. ENB-T is betting big on the long-term value of natural gas in the energy transition as the world seeks to shift away from more polluting forms of fuel, buying three U.S. utilities for US$9.4-billion to create the continent’s largest natural gas utility.

The Calgary-based company announced Tuesday it has entered into three agreements with Dominion Energy Inc. to acquire the East Ohio Gas Co.; Questar Gas Co. and its related Wexpro companies; and Public Service Co. of North Carolina Inc. The deal comprises US$9.4-billion in cash, plus US$4.6-billion of assumed debt.

Enbridge plans to fund the deal through a combination of debt and equity, and on Tuesday, the company launched one of the largest share sales in Canadian history.

The acquisition represents a “generational opportunity” for Enbridge, the company’s chief executive Greg Ebel said on a conference call.

“We remain firmly of the view that all forms of energy will be required for a safe and reliable energy transition. This transaction helps to achieve greater balance and gives us increased exposure to natural gas, which is and will continue to be the critical fuel to help realize our lower carbon aspirations,” Mr. Ebel said.

Canadian fossil-fuel producers maintain that natural gas will play a crucial role in the power grid as countries move to reduce greenhouse-gas emissions, and proponents want to see it displace more carbon-intensive coal for generating electricity in other countries. Critics argue that gas isn’t that much better, as system leaks release large amounts of methane, and burning natural gas releases other powerful emissions, such carbon dioxide, into the atmosphere.

Enbridge lining up support for B.C. natural-gas pipeline plans

The Enbridge expansion will split the company’s earnings before interest, taxes, depreciation and amortization 50-50 between its U.S. and Canadian operations, by beefing up an American presence that grew rapidly when Enbridge bought Spectra Energy Corp. in 2016.

It will also significantly diversify the company’s geographical footprint into Ohio, Utah, Wyoming, Idaho and North Carolina. Those jurisdictions come with two major benefits, Enbridge says: supportive regulatory regimes for natural gas; and projected population growth that far exceeds the U.S. average.

Mr. Ebel said the utilities also have long lives and have each committed to achieving net-zero greenhouse-gas emissions by 2050.

“This is, without question, a historically rare opportunity; we are acquiring high quality growing gas utilities upscale for an attractive price,” he said.

Ade Allen, a senior analyst at Rystad Energy, said Enbridge’s announcement demonstrates how confident the company is in the long-term prospects for natural gas in North America.

While solar and wind power are crucial intermittent suppliers in the energy transition, natural gas will still play an important role in providing a steady base load, he said in an interview Tuesday from New York.

“There is intermittency in some of these alternatives, whereas natural gas tends to show up when we need it the most,” Mr. Allen said.

Enbridge has also been keen to participate in exports of liquefied natural gas. The company acquired a 30-per-cent stake last year in Woodfibre LNG, which is scheduled to begin construction later this month at a site near Squamish, B.C.

Woodfibre LNG announced Tuesday that BP Gas Marketing Ltd. will be buying the vast majority of the LNG to be produced at the Squamish-area facility that is slated to start exports in 2027.

Tuesday’s acquisition of U.S. assets is expected to close next year following regulatory approvals.

The $4-billion share sale Enbridge also announced Tuesday is one of the largest ever in Canada. Previous deals of this size include TC Energy’s TRP-T record $4.4-billion share sale in 2016 – which was followed by another $3.5-billion share sale later that year – and Barrick Gold Corp.’s ABX-T US$4-billion share sale in 2009, which was used to eliminate the bullion producer’s fixed-price gold contracts.

Enbridge shares are being issued at $44.70 a piece, a sizeable 7.2-per-cent discount to where they closed on Tuesday. When markets are hot, share sales are usually priced at a tight 2-per-cent discount to their last traded price, but Canada has endured a drought of financings in 2023.

As of July 31, total financings raised by companies listed on the Toronto Stock Exchange came to $5.8-billion, according to TMX Group, down 54 per cent from the same period in 2022 and plummeting 81 per cent from the same period in 2021.

The deal is another major splash for Enbridge in the United States, after the Canadian energy giant bought Houston-based Spectra Energy Corp. for $37-billion in an all-share deal in September, 2016.

At the time, Enbridge was heavily weighted to oil, but the crude market was enduring a multiyear rut after Saudi Arabia flooded the global market with supply, sending oil prices plummeting. To pivot, Enbridge’s then-CEO Al Monaco laid out a plan to expand in power production and natural-gas transmission.

Enbridge ultimately bought Spectra, which had 27,520 kilometres worth of long-haul natural-gas pipelines. Spectra also had midstream assets – or natural-gas processing plants – in British Columbia’s Montney formation.

Crucially, though, the company’s pipelines ran through the Northeast U.S. That location was notable because in early 2016, Canadian rival TC Energy – then TransCanada Pipelines – bought Columbia Pipeline Group for US$10.2-billion. Columbia specialized in transporting gas from the booming Marcellus shale formation in the U.S. Northeast.

Following Enbridge’s acquisition, Spectra CEO Greg Ebel became chair of Enbridge’s board of directors, and in January, he succeeded Mr. Monaco as Enbridge’s new CEO.

On Tuesday, Enbridge’s shares closed at $48.16, 7 per cent below their trading price before the blockbuster Spectra deal was announced.

Editor’s note: A previous version of this article incorrectly stated that burning natural gas releases large amounts of methane. Natural gas system leaks release methane, while burning natural gas releases other greenhouse gases. This version has been updated.