Enbridge Inc. Has a New Plan for Profits as Pipelines Projects Remain Derailed

Enbridge Inc (TSX:ENB)(NYSE:ENB) and its MLP, Enbridge Energy Partners, L.P. (NYSE:EEP), are considering a new rail terminal in Oklahoma.

| More on:
The Motley Fool

Enbridge Inc (TSX: ENB)(NYSE: ENB) is working on a solution for the glut of oil in Canada that has been caused by a lack of new pipeline takeaway capacity. Among its plans is to construct a new 120,000-barrel-per-day rail terminal in Cushing, Oklahoma, through its American MLP subsidiary Enbridge Energy Partners, L.P. (NYSE: EEP). It’s just the latest step Enbridge is taking as it tries to figure out how to make money by moving oil out of Canada and into refineries around the world.

Following the money train

Oil pipeline companies trying to build new oil sands pipelines are facing opposition from all directions. This is forcing them to look for alternative options to keep the oil flowing. The option that seems to be rising to the top is rail, which is an interesting twist given the fact that rail is actually a competing option to pipelines. However, given the exponential increase in oil shipments over the past few years, we’re seeing pipeline companies make investments to capture some of these rail profits for their investors.

Enbridge is joining the fray as its Northern Gateway pipeline project remains at risk. However, what’s interesting is that the rail option it’s considering would focus on oil being shipped into the U.S., which is an entirely different direction than oil would flow if the Northern Gateway pipeline is built. The reason for this is because the company isn’t looking at rail as a replacement for its pipelines, but as an option to enhance its own pipelines.

Location matters too

This is pretty clear when we realize that Cushing is an important location for Enbridge, and the oil shipping industry in general. It’s a top oil storage hub and Enbridge actually owns 20 million barrels of oil storage capacity in the region. So its consideration of Cushing for a rail terminal makes sense given its importance as an oil storage hub.

However, the location is important because of its proximity to other oil pipelines, in particular the recently expanded Seaway pipeline. That pipeline, which Enbridge jointly owns with Enterprise Products Partners (NYSE: EPD), was reversed so that oil now flows south toward the U.S. Gulf Coast. By putting a rail terminal in Cushing, Enbridge can give shippers an option to get oil from Canada to the Gulf Coast, which is what TransCanada’s (TSX: TRP)(NYSE: TRP) Keystone XL pipeline was designed to do. While Enbridge’s rail terminal wouldn’t completely replace the proposed capacity of Keystone XL, it could potentially cut into the oil supplies that would have been shipped by the project earnings fees for Enbridge instead of TransCanada.

Investor takeaway

Oil pipeline companies are beginning to look more strategically at using rail options to capture advantages as new oil sands pipelines remain delayed. We see this with Enbridge, which is trying to enhance its options to ship oil to Cushing, Oklahoma, so that the oil could then be shipped on its Seaway pipeline. This will enable the company to not only make a little money on rail, but also enhance its own pipelines to make sure those are flowing at capacity, which could provide future expansion opportunities.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt DiLallo owns shares of Enterprise Products Partners.

More on Energy Stocks

Dividend Stocks

2 of the Best Stocks to Buy for Fast-Growing Passive Income 

In this economy, you need a passive income that grows fast enough to beat inflation in any situation. These two…

Read more »

TFSA and coins
Energy Stocks

Turn a TFSA Investment Into $274K by 2033

The next decade should be strong for this clean energy stock, which is why I would choose it if investing…

Read more »

Piggy bank next to a financial report
Energy Stocks

Here’s How Much You’d Actually Have to Invest to Get Hundreds in Monthly Dividend Income

Can you earn several hundred dollars of passive income each month from Enbridge stock?

Read more »

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Tuesday, December 6

TSX investors may want to remain cautious ahead of the Bank of Canada’s interest rate decision due on Wednesday.

Read more »

oil and gas pipeline
Energy Stocks

Should You Be Buying Liquefied Natural Gas Stocks Right Now?

Here's why Tourmaline Oil (TSX:TOU) is one of the top natural gas stocks long-term investors should consider buying in this…

Read more »

Couple relaxing on a beach in front of a sunset
Energy Stocks

3 CPP Changes Coming in 2023 – What to Invest Your Accounts In

CPP premiums are increasing next year. You can lower your overall tax burden by holding stocks like Enbridge Inc (TSX:ENB)(NYin…

Read more »

energy industry
Energy Stocks

Suncor Stock Fell 7.4% in November: Is it a Buy Today?

Suncor (TSX:SU) is undervalued, but not appealing enough.

Read more »

tsx today
Energy Stocks

TSX Today: Stocks to Watch on Monday, December 5

Canadian stocks may remain volatile ahead of the Bank of Canada’s upcoming interest rate decision due on Wednesday.

Read more »