Enbridge Beefs Up RNG Portfolio with $1.2B in Acquisitions

Canadian infrastructure company Enbridge has elevated its position in the renewable natural gas (RNG) space with its US$1.2 billion purchase of seven landfill gas-to-RNG facilities from Texas-based Morrow Renewables.

The move, announced on Nov. 3, comes as the company continues to diversify its portfolio with de-risked assets capable of contributing to EBITDA and dividend growth sooner rather than later. Combined, the facilities—all of which are operational in Texas and Arkansas—produce about 5 Bcf of RNG per year.

“As the landfills continue to grow, that production number will continue to grow at approximately 3% annually with minimal required capital investment,” Enbridge CEO Greg Ebel said on the company’s third-quarter 2023 earnings call with analysts. “RNG fundamentals are strong in the United States and indicate continued growth in demand over the long term as gas utilities increasingly continue to set RNG blending targets.”

With a carbon intensity lower than fossil natural gas, RNG is seen as a route to decarbonization. Instead of being released into the atmosphere, methane gas from landfills, animal manure and sewage sludge can be turned into fuel. RNG is formed when contaminants that include CO2, water and hydrogen sulfide are removed from methane to elevate the gas to pipeline quality.

RNG can be used in the same ways as fossil gas, and as Enbridge explained, can be easily blended into existing natural gas distribution and transmission networks to fuel transit fleets, power industry facilities and heat homes and businesses.

“This was the perfect opportunity to meaningfully add to our RNG portfolio with an accretive Enbridge-like tuck-in, which has long-term full volume offtake agreements with Shell Energy North America and BP,” Ebel said. “Unique to this deal and in keeping with our commitment to protect our balance sheet, we’ve staggered the purchase price over 24 months.”

Six of the municipal landfill-to-RNG facilities are in Texas and the seventh is in Arkansas.

The acquisition follows Enbridge’s March 2023 announced collaboration with Divert Inc. to develop facilities that turn food waste into RNG. Enbridge acquired a 10% stake in the company, a move that also aims to help food retailers sustainably manage food waste.

Enbridge’s gas utility Enbridge Gas is also involved in seven Canadian RNG projects either in operation or under construction, the company has said.

The RNG market is large and growing, said Cynthia Hansen, president of Enbridge’s gas transmission and midstream operations. She said about 75 Bcf of RNG was produced in North America in 2022 and that is expected to grow to about 95 Bcf, although she didn’t specify how soon.

Despite the positive outlook, the company remains disciplined in its approach.

“Our ability to have those offtakes agreements will be critically important as we go forward,” Hansen said.

Enbridge said it expects U.S. RNG demand to grow by up to 8 Bcf/d by 2040.

Growing renewables

Additional investments in RNG came as Enbridge also upped its stake in the Energie Baden-Württemberg AG (EnBW)-operated Hohe See and Albatros German offshore wind projects in the North Sea.

Together, the wind farms’ 87 wind turbines produce about 2.5 billion kilowatt-hours of electricity. Both wind farms are currently operating, supplying energy to more than 700,000 households, with 16 years left on a government-backed power purchase agreement.

Enbridge said it is acquiring an additional 24.45% interest in the projects from the Canada Pension Plan Investment Board for CA$374 million (US$273 million), increasing its stake to 49.89%. The transaction is expected to close by the end of 2023.

“We are judiciously deploying our investment capacity. We’ve added another [CA$] 2 billion of tuck-ins this quarter with the additional ownership of Hohe See and Albatros wind farms and the RNG asset, bringing us the [CA$] 3 billion for the year,” said Enbridge CFO Pat Murray. “We continue to execute the strategy we laid out at Investor Day and allocate capital to deliver the quality growth we committed to. Prudent capital allocation is core to our value proposition. We will continue to evaluate opportunities for organic growth and opportunistic tuck-in M&A that maximizes shareholder returns.”

In France, Ebel said Enbridge is on track to bring 1 gigawatt of new generation online by 2025. About half of the turbines for the 497-megawatt (MW) Fécamp have been installed, while all turbines have been installed and floaters secured for the 24-MW Provence Grande Large floating wind farm. Both are on budget and on schedule to enter service in first-quarter 2024. The 448-MW Calvados wind farm is also on budget and on schedule to enter service in 2025.

All of the above

Enbridge also said it is on track to close by 2024 acquisitions of three U.S. gas facilities from Dominion Energy in a US$14 billion deal. The company reported securing about 75% of the required financing.

A strong liquids business also led to an upsized and relaunched Flanagan South open season for a pipeline expansion with plans to initiate an open season for Gray Oak pipeline in the fourth quarter.

The Flanagan South open season for 110,000 bbl/d opened Nov. 2 and ends at 1 p.m. Nov. 29. The 954-km interstate pipeline stretches from Illinois to Cushing, Oklahoma.

Enbridge’s Mainline oil pipeline system, which transports light and heavy crude from Edmonton, Alberta, to the U.S. Midwest and Ontario, saw record third-quarter volumes of about 3 MMbbl/d.

While Enbridge embraces an all-of-the-above strategy, it is steering clear of U.S. offshore wind—an industry that has lately seen project cancelations and impairment charges.

“I really don’t see North American offshore as something that’s attractive to us. It would not fit our risk parameters from a return perspective,” Ebel said, comparing it to Europe where long-term contracts are in place and the sector is more mature.

Though several offshore wind projects are in development, only two are currently in operation: Block Island wind farm offshore Rhode Island and the Coastal Virginia Offshore Wind pilot project.

Offshore wind developers in the U.S. have struggled lately amid inflationary pressure, rising interest rates and supply chain delays.

“Just to be clear, that’s not something that we find attractive,” Ebel said of U.S. offshore wind.