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.ashx 2 http://www.nrcan.gc.ca/eneene/sources/natnat/liqliq-eng.php

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 of Philippiness future plans
3

http://www.nrcan.gc.ca/eneene/sources/natnat/infinf-eng.php#why http://www.bloomberg.com/news/2011-09-19/lng-price-boom-seen-as-japan-vies-with-china-while-exxon-sshipments-grow.html
4
5

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

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 the problem 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.

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

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, Exxons Shipments Grow. Retrieved from http://www.bloomberg.com/news/2011-09-19/lng-price-boom-seen-as-japan-vies-withchina-while-exxon-s-shipments-grow.html

5. ABS-CBN Interactive. (2011, September 20). Philippines aims to begin importing LNG in 4 to 5 yrs. Retrieved from http://www.abs-cbnnews.com/business/09/20/11/philippines-aims-begin-importing-lng-45-yrs