8/3/2019 En Bridge

1/4

Tom (Zaiyi) Liu

A00759116

Position: Enbridge will increase profit by diverting its North American distribution of

natural gas to Asia.

Currently, Enbridge acts as Canadas largest natural gas distributor, with the capacity to serve

1.9 million customers. According to the companys 2010 annual report, its adjusted earnings

from gas distribution have increased from $ 141 million to $ 167 million for the period of 2008 -

20101.

The increased earning however is only because of the higher amount of distribution, as the price

of natural gas has become relatively low due to the recent global recession. It is safe to assume

that the price of natural gas in North America will be kept low in the next 3 - 5 years because of

weak industrial demand and increased U.S. shale gas production2. So in order for Enbridge to

further increase its profit, it has to either keep on increasing its distribution in North America, or

find another market.

The first method should be avoided in the long run. This is because of the North American

economy is growing at a terribly slow rate, and this slow growth rate indicates that there will be

less infrastructure development, which leads to less demand for natural gas. Therefore, it will

come to a point where there is no more demand for natural gas, thus making an increase in

distribution impossible.

The second method however, is a more feasible solution for Enbridge to increase its profit in the

long run. This is because most parts of Asia, Africa and Latin America are quickly becoming

industrialized. When industrialization occurs, energy source becomes a major derived demand.

When we compare these three developing markets, Asia seems to be the best one for several

reasons.

1

http://www.enbridge.com/InvestorRelations/FinancialInformation/~/media/Site%20Documents/Investor%20Relat

ions/2010_annual_report_en.ashx2

http://www.nrcan.gc.ca/eneene/sources/natnat/liqliq-eng.php

8/3/2019 En Bridge

2/4

First, Asia contains a few of the worlds strongest and fastest growing economies like Japan,

China, India and South Korea. Second, as Asia is becoming more industrialized than the other

two markets mentioned, it is going to look for energy sources other than oil. Natural gas is the

best choice because it is cheaper to store and distribute than nuclear energy. It burns cleaner than

oil and coal, and it is more efficient than wind and geothermal energy3.

Thirdly and most importantly is that Asia has the highest demand for natural gas in all three

markets mentioned, and the high demand will directly translate into high price, which means

higher profit. According to a Bloomberg article, China has increased 27% of its first half

purchase4. India and Japan have also increased their import by a record amount. This increase in

demand accompanied with the tightening of supply from countries like Qatar and Australia has

made the price of natural gas sky rocket in the Asian market. Prices may increase by as much as

70% to $20 per British thermal units5. Compare that price to the price in the North American

market; it is almost four times as profitable. Thus, by diverting its natural gas distribution,

Enbridge will become more profitable.

However, before Enbridge could begin to distribute natural gas to Asia, there are several issues

that the company must consider.

One issue would be potential producers to partner with. The Kitimat project in B.C. seems to be

a good project for Enbridge to buy into, because the resource is newly discovered, and it is

closest to Asia geographically. The geographic proximity plays an important role, because

transportation cost is very high due to very specific requirements for the transportation of natural

gas. Therefore, the shorter the distance, the less it will cost Enbridge to transport it.

Another issue would be which country to export to first. Again, geographic position matters

when dealing with this issue. Taiwan, another natural gas importer, is geographically in the

middle of all other natural gas importing countries including China, South Korea, Japan and

India. Its proximity to the Philippines is also an advantage because ofPhilippiness future plans

3http://www.nrcan.gc.ca/eneene/sources/natnat/infinf-eng.php#why

4http://www.bloomberg.com/news/2011-09-19/lng-price-boom-seen-as-japan-vies-with-china-while-exxon-s-

shipments-grow.html

5http://www.bloomberg.com/news/2011-09-19/lng-price-boom-seen-as-japan-vies-with-china-while-exxon-s-

shipments-grow.html

8/3/2019 En Bridge

3/4

to import natural gas6. Therefore, setting up storage and distribution in Taiwan seems to be the

optimal decision. Setup of storage and distribution channel will then lead to the next issue, which

is infrastructure.

Infrastructure is expensive and could take a long time to build, but Enbridge could overcome theproblem by investing on existing infrastructures in Taiwan to improve capacity and increase

numbers of distribution channel. Since Taiwan is already importing natural gas, it should have a

decent amount infrastructure and specialty personnel to handle the natural gas. By investing in

existing infrastructure, Enbridge is saving the training costs as well as some of the building costs

of infrastructure.

These are some of the preliminary issues that Enbridge may face if they are to distribute natural

gas to Asia. More issues such as political instability, technological advancement, as well as

natural disaster may alter the companies successful, however, if dealt properly, these issues can

all be solved. The main goal is still to profit, and by distributing natural gas to Asia, the company

has a better chance to increase its profit.

6http://www.abs-cbnnews.com/business/09/20/11/philippines-aims-begin-importing-lng-4-5-yrs

8/3/2019 En Bridge

4/4

Bibliography

1. Enbridge Inc. (2010, December). 2010_annual report.Retrieved from

http://www.enbridge.com/InvestorRelations/FinancialInformation/~/media/Site%20Documents

/Investor%20Relations/2010_annual_report_en.ashx

2. Natural Resource Canada. (2011, Feburary 24).Energy Source: Liquefied Natural Gas.Retrieved from

http://www.nrcan.gc.ca/eneene/sources/natnat/liqliq-eng.php

3. Natural Resource Canada. (2011, Feburary 24).Energy Source: Why use Natural Gas?Retrieved from

http://www.nrcan.gc.ca/eneene/sources/natnat/infinf-eng.php#why

4. Sethuraman, D. (2011, September 19).LNG Surges as Japan Vies with China, ExxonsShipments Grow.

Retrieved from

http://www.bloomberg.com/news/2011-09-19/lng-price-boom-seen-as-japan-vies-with-

china-while-exxon-s-shipments-grow.html

5. ABS-CBN Interactive. (2011, September 20). Philippines aims to begin importing LNGin 4 to 5 yrs.

Retrieved from

http://www.abs-cbnnews.com/business/09/20/11/philippines-aims-begin-importing-lng-4-

5-yrs