Company Overview
Enbridge is primarily an energy delivering company, supplying energy across Canada and the U.S. It boasts of the biggest crude oil and liquids supply system worldwide. Other industry-related businesses of Enbridge include natural gas stocking, transmitting and midstream. It is also into generation of renewable and alternative energy, including solar, wind and geothermal energy (Enbridge, 2016).
When stating its mission, Enbridge uses clear words, describing its core values of integrity, safety and respect. It lays stress on environment, health and safety, based on safety principles and life-saving norms by underlining these values. Informing about its 65 years old record and being one of the 100 most sustainable companies globally, it elaborates on its transportation, generation and distribution aspects of businesses, very clearly describing its present businesses and its strategic objectives to be the leader in its area of operations (Enbridge, 2016). Enbridge has successfully maintained its ranking consecutively for the last seven years, trading its common shares on the Toronto and New York stock exchanges (Yahoo News, 2016).
The vision of Enbridge is to become the leader in energy supply in North America. The leadership visionary role that Enbridge wants to play is central to the economic prosperity and living standards of the people of North America who need to be provided energy through secure, most dependable and effective ways. It associates its mission with value addition not only for its employees but ensuring security of the environment through its transportation infrastructure, paying attention to customer preferences and fulfilling social obligation for the surrounding communities. Enbridge plans to realize this vision through growth, dependable business model besides ensured earnings through regular and ever-increasing revenue stream. The vision of Enbridge is very strategic in the sense that it specifies the future course of market expansion, covering the North American market. It provides product differentiation, depending on sophistication in technology to leverage from renewable sources of energy and investing highly in their exploitation (Enbridge, 2016).
Testing the Company vision on the benchmarks of strategic vision, we see that it is future-centric, adding more products to its product-line and is focused to increase the market size, which are the symptoms of a strategic vision. Short-listing the eight fields of strategy, one being the financial strength and elasticity, the Company management does yearly review of its strategic aims of operations and expansion programs in core areas and new enterprises for attaining business growth (Enbridge, 2016). Business-wise, Enbridge is very clear about its business aim of attaining growth in the renewable energy sector to double the generation capacity by 2019. Enbridge has invested highly in the green power portfolio, about $5 billion in wind, solar, geothermal, hydropower and waste heat recovery projects. Diversification is at the centre of Enbridge green initiatives for attaining revenue growth by assimilating investments with the current business model. The sole aim is to get robust returns with long-term and robust cash-flows. Strategically, Enbridge invests in such green power projects that are run by third parties to facilitate later a bigger say in off-take and REC sales contracts; it is the Company’s shift towards an integrated model of business. Participating in the early stages of such projects provides the opportunity of getting a competitive edge of the renewable energy market, a peculiarity of its integrated business model (Enbridge, 2016).
PESTEL Analysis
Social – Infrastructure Development
Competitor company TransCanada’s unsuccessful initiatives for the Keystone XL pipeline have strengthened Enbridge’s opportunity, arising from its robust infrastructure development to carry energy products to North America. Besides, Enbridge is getting cost advantage from rising energy prices in other regions. It has been able to provide less-costly crude to ports on the Gulf of Mexico by turning the flow of Seaway Pipeline in opposite direction in collaboration with Enterprise Products Partners the previous year; crude oil can be refined there to be sold at increased prices in the international market for refined commodities (Caplinger, 13 Feb. 2013). Enbridge is also using modern means of shifting crude from unreachable places by using trains. Thus, it is coming up to the competition against Union Pacific, Canadian Pacific, and other railroads, which have taken the leap by using rail as a means of transport for crude (Caplinger, 13 Feb. 2013).
Legal -- Regulatory Hurdles
Enbridge faces non-compliance issues. It needs to come out of the regulatory hurdles so that it may get benefitted from the increasing demand for its network. It has not been able to get leverage from its expanded network of pipelines. One reason of it has been high cost of regulatory compliance. High quality asset base is must to comply with the legally set parameters of quality. The result is that the competitor company, Enterprise, whose asset base is of relatively better quality and does not present any compliance issue, is taking the benefit. Enbridge needs to benchmark its asset base. Alternatively, by becoming an associate of Enterprise Products Partners on the Seaway Pipeline, Enbridge can help in reducing the huge hurdles in takeaway load and get ahead (Caplinger, 13 Feb. 201
Political –Stability Adds to Enbridge’s Financial Strength
Although the Alberta midstream region has an incessantly changing political climate but it offers a positive perspective of the political scenario, as the Alberta and Canada governments have a history of continuous stability. Both the local and central governments are not politically against the oil & gas industry. In Alberta, the Progressive Conservative Party has been at the helm of political affairs since 1971. It has encouraged the oil and gas industry as the state’s economic stronghold (Bargorett, 2014). One of the strengths of Enbridge has been its continuous good performance in earnings, which has been possible because of the support to the industry by the government. Actually, Enbridge has been relatively performing better than other companies of the industry. Since 2010, it has been making new records. A glance of the past quarters stats over Enbridge proves the point (Caplinger, 13 Feb. 2013).
Analysts have been optimistic about the comparative stability of the Company’s profits for the period. It also gets huge leverage from its geographical positioning. It boasts of a large pipeline network in Canada and associations to the U.S. Leading production facilities provide the situation benefit. Besides, leading projects of the capacity of producing 125,000 barrel-a-day pipeline, linking the current network to producers in Bakken and the Northern Gateway project, starting from Alberta's oil sands area to the western Canadian coast, hold great promise of growth in the future (Bargorett, 2014).
Political stability has played a key role in strengthening the financial position of Enbridge, which has been very robust, considering the performance in the past five years. It has been successful in garnering commercial backing and ensuring ongoing projects’ safety. Huge infrastructure adds to the Company’s strength, providing it the benefit of flexibility and load to react quickly to market trends and competition. For instance, in Eastern Canada, it has turned around the 639 km. line 9B, linking Sarnia, Ontario and Montreal, while TransCanada needs to lay a new line to cover 4,600 Km. for the same purpose. Enbridge’s huge asset base and sheer size provides it economies of scale benefit over its competitors. Its infrastructure base is very robust, as operating in the line of its business for more than 60 years. One can see through the strategic management acumen in the enlarging asset base of Enbridge. Besides the present diversification of energy portfolio including liquid and gas pipeline and gas distribution, Enbridge is marching ahead with natural gas processing plants. Simultaneously, it is putting funds in electricity transmission and creation of renewable energy and making assets in technology, which have increased to $3 billion in worth. It is building strength by investing in innovative technologies in collaboration with technology companies, industry leaders, and the Alberta government in the field of pipeline safety and leakage finding (Bargorett, 2014).
Key Industry Pressures (KIP) -- A Competitive Analysis of Trends
KIP -- Challenges of Supply & Demand
Alberta’s midstream oil & gas sector is affected by the reduction in the demand of oil & gas and also affecting the calibre of Enbridge in fulfilling the gap between supply and demand to refineries and potentially huge global markets. The industry faces deficiency of pipeline strength and sole dependency on the U.S., as a customer. The U.S. is facing over-supply issue at its end, which is affecting the price of Alberta crude negatively. It has forced selling at discount rates by Western Canadian Select (WCS) relatively to the West Texas Intermediate (WTI) (Bargorett, 2014).
The impact of this industry pressure on competitors, according to Porter’s five forces model on rivalry will be an increase in competition. The player having robust supply network will demand higher price, while weak players may offer a discounted rate to consumers. New players can enter market, having faith in their robust financial condition to force exit of other weak players or be partners with them on the strength of their strong financials. Although substitutes to oil & gas may not present a threat in the short term, but in the long run possibility of substitutes cannot be negated. Bargaining power of buyers will increase if supply is more than demand. As the U.S., the main buyer, is having its own crude production and facing reducing demand, Alberta may not be able to find new buyers, leading to reduction in oil & gas prices. Suppliers’ bargaining power will decrease and the trend of offering discount rates will get stronger.
KIP – Rising Project Cost
Another leading industry pressure is to contain the project cost. Rising project cost has become a global issue with Alberta oil & gas industry. This is one of the top ten risks, affecting the industry. There have been incessant and important cost and time-overlapping incidents, as has emerged from a review of the industry’s projects. Primary cause of delay occurs during engineering and making stages due to faulty planning & management, workforce deficiency affecting productivity, harsh climate and other industry pressures (Bargorett, 2014).
Effect of rising project cost is going to reduce rivalry among competitors, as they will make efforts in fighting the rising cost united, sharing knowledge to the benefit of all industry stakeholders, irrespective of the fact that they are competitors although this may not be always true. New entrants would deter from entering the market although substitutes may offer a threat, as their cost would be relatively lower. It will be an opportunity for substitute products to garner or usurp some segment of the market. Generally, it happens in any industry that buyers don’t show any interest in sharing the increased cost; they would prefer to wait & watch till the time and most probably would turn towards other suppliers who have a record of completing their projects in-time. Affected suppliers won’t be able to command the asked price, leading to reducing bargaining power.
KIP – Opposition from Environmental, Aboriginal and Political Groups
The geographical location of Alberta is such that state governments in Canada and state and central governments in the US, and other stakeholders impact the midstream sector’s pipeline projects. Off late such projects in the pipeline to the East, West and South of the state wanted to reach foreign markets and refineries in the U.S., but they had to face severe opposition from environmental, Aboriginal, and political stakeholders. Besides, governments at various local and state levels also opposed pipeline projects. For example, Enbridge’s Northern Gateway and Line 9B projects were opposed by the governments of British Columbia and Quebec (Bargorett, 2014).
The impact of this KIP, namely opposition from stakeholder groups, including environmentalists, aboriginals and political groups, including the concerned governments as well on the five forces on industry rivalry will lead to reduction in competition. As opposing stakeholders are many, their opposing influence will also be severe. When a company faces opposition from many stakeholders, it will first of all stop its expansion programs. Either it needs to satisfy their concerns through their public relations or by fulfilling the CSR urgencies so that local people do not oppose their industry. Environmental issues cannot and should not be cornered away by any company. As the most important stakeholders are the concerned governments, oil & gas companies in Alberta need to satisfy the issues of all of them. Coming to competition, it will get a setback, which can be temporary or long term, which depends on the strategy followed by different oil pipeline companies.
New entrants will feel discouraged, as the environment for their entry may not be conductive. For any company to remain well rooted in its market of operation, it needs the support of all stakeholders at macro level. So far as threat of substitutes is related, the said trend of the whole industry facing opposition from various quarters can present a real threat from substitutes if those companies are not creating any environmental issue; locals are getting employed in their businesses, and governments are not creating any regulatory hurdles.
Bargaining power of buyers would increase and that of suppliers will decrease. Buyers would find themselves in better position to finalise a transaction. Supplier companies would feel cornered. They may have to undergo such issues as scarcity of labour and capital resources.
Conclusion
The above discussion on the macro-economic environment of the oil & gas industry in Alberta, based on the PESTEL analysis of the company trends and specifically an analysis of Enbridge, along with the discussion over the KIPs and their impact in relation to Porter five forces, reveals the ins and outs of the oil & gas distribution in Alberta. The overall industry may not present a rosy picture but the research over Enbridge reveals that it has managed the affairs of its businesses strategically quite well. It has been successfully following stipulated environment, health and safety concerns of its employees, the surround communities, company stakeholders and governments at various levels. It is evident from the fact that the Company has been successfully maintain its ranking of one of the top 100 most sustainable companies in the world, which is a big achievement. Prospects are high that Enbridge would be able to fulfil its vision of becoming the leader in energy supply in North America.
It can be concluded that Enbridge has those strategic management capabilities to complete its diversified projects in the given environment. The macro-economic environment of the oil & gas industry in Alberta provides a complete insight of the industry-wide opportunities and risks to Enbridge. Off late pipeline incidents are a real threat that needs to be managed on a wider scale, as Enbridge has also been involved in pipeline busting and fracturing incidents. For this mid-stream sector in Alberta, there are environmental issues of increasing costs that need to be cleared for the interests of all stakeholders. The 2% of GHG emissions, the onus of which is on Canada, it is of alarming concern that the oil and gas industry’s share is 23%. PESTEL analysis has raised these issues of the industry.
One of the Enbridge’s aims has been providing decent value to investors’ money that it has been doing quite well. It has been capable in building huge infrastructure to face rising competition, leveraging from its robust financials and strategic management. It has been able to provide a strategic fit between its strong capabilities and macro-environment trends and occurrences. Nevertheless, Enbridge needs to cater to all stakeholders’ interests, finding dependable solutions to all PESTEL issues, prioritising the solutions to grave social and environment related issues, to face negative publicity over its projects.
References
Bargorett, E. (2014). Macro-environmental analysis for the Alberta midstream oil and gas sector. Retrieved from dtpr.lib.athabascau.ca: http://dtpr.lib.athabascau.ca/action/download.php?filename=mba-14/open/BargorettEvans.pdf
Caplinger, D. (2013). Enbridge earnings: An early look. Retrieved from fool.com: http://www.fool.com/investing/general/2013/02/13/enbridge-earnings-an-early-look.aspx
Enbridge. (2016). Our company overview. Retrieved from Enbridge.com: http://csr.enbridge.com/en/about-enbridge/our-company/
Yahoo News. (2016). Enbridge Inc. announces election of directors. Retrieved from finance.yahoo.com: http://finance.yahoo.com/news/enbridge-inc-announces-election-directors-222023905.html
