Spectra Energy Corp (SE) remains on track with its extensive $1.5 billion expansion program from 2009 to 2013 in British Columbia (B.C.). The natural gas pipeline operator also aims to expend more in the region after 2015 in order to meet the energy needs of North America.
The $1.5 billion expansion agenda involves the development of essential natural gas infrastructure, including the construction of two new natural gas processing facilities in northeast B.C. and related natural gas gathering pipelines. Additionally, it includes the expansion of Spectra’s natural gas transmission system in the province.
Spectra is also planning to invest around $4 billion to $6 billion beyond 2015 in projects that demand building of large pipelines linking the Canadian province with Asian markets. A surge in North American shale production has prompted many companies to export excess natural gas. Hence, Spectra is also looking at the Asian markets, which require greater supplies of natural gas from varied and consistent suppliers.
The projects will cater to the energy needs in B.C. and other markets across North America. They will also diversify Spectra’s portfolio in other emerging markets and boost the economy of B.C. The company highlighted that these ventures would create more than 1,350 construction jobs, resulting in $120 million contracts with First Nations in northeast B.C. and other local contractors.
The company intends to fully incorporate local expertise in the project, recognizing utmost benefits for communities across the province while moving ahead with its business operations.
Though we believe commodity price concerns remain over the near term, the company’s core fee-based businesses of storage, transmission, distribution and Canadian gathering and processing have the potential to move the needle toward solid earnings and cash flow growth in the long run.
Spectra Energy is one of North America’s premier natural gas infrastructure plays and has strong business positions in growth markets. Hence, considering the risk associated with the weak natural gas price environment, we remain on the sidelines and maintain our long-term Neutral recommendation for the company.
Spectra, which competes with Kinder Morgan Inc. (KMI), hold a Zacks #3 Rank that implies a short-term Hold rating for a period of one to three months.
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