2025 Energy Infrastructure Outlook

The ATB Take: The year ahead should bring transformational changes to the energy landscape in Canada with LNG Canada entering service, the potential for data center development and the continued ramp-up of TMX. With improved egress and market optionality, we expect the pricing response will spur development across the WCSB and lead to y/y volume growth in the mid-single-digit range. While this will support high utilization of existing energy infrastructure assets, we also anticipate targeted capex deployment toward brownfield projects that improve connectivity and attractive investment multiples (5-8x) to elevate cash flows across the entire midstream value chain. Balance sheet positioning will continue to differentiate investment preferences and remains a core priority for a number of names under coverage (ALA, PKI, SOBO, TRP). Given the value creation in 2024, we anticipate share repurchases will remain active as an alternative cash flow lever, with GEI, KEY, PKI, SES, SPB and TA likely to execute under their respective NCIBs. The natural gas trade, driven by LNG and power demand, is expected to provide catalysts for IPPs, utilities and transmission pipeline operators. Our highest conviction names in the year ahead are ALA, ENB, SES and TA.

Highlights:

• ATB Energy Infrastructure Top Picks in Early 2025: We are looking to names like ALA, ENB, SES and TA that are well positioned in 2024 with unique market exposure, valuation upside and attractive tailwinds in the current environment.
• WCSB Tailwinds: Canadian energy will be looking globally in 2025 as TMX and LNG Canada provide much needed market diversity. Despite Canada’s continued reliance on the US demand market, domestic hydrocarbons will have more flexibility to reach foreign markets for crude, natural gas and NGLs. The commodity pricing response should incent upstream production, which is well positioned given E&P balance sheet strength. Midstream operators like ALA, KEY and PPL are well positioned to capture incremental volumes for gas processing, transportation and fractionation. We also highlight SES as a beneficiary of increased upstream activity and associated waste/water needs.
• Growing Demand for Reliable Natural Gas Generation: North American gas-fired generation has increased 77% since 2010, compared to total generation adds of ~3% over the same period. This has been driven by coal retirements, reliability additions and growing AI/HPC demand; which, we expect will continue to drive thermal generation expansion. We expect ALA, TA and ENB to directly benefit from increased natural gas reliance given their respective power generation capability and utility positioning.
• Price Target and Rating Changes: We have largely left near-term estimates unchanged, but have revised longer-term estimates for SES and TA. Our SES revisions capture expectations for growing WCSB production and associated waste/water activity, driving our price target higher to $20.00 from $18.00. For TA, we have revised our terminal growth rate to 2.5% from ~2.0% to capture the significant growth optionality available to TA in the rising firm power demand environment and potential data center activity. We have left all ratings unchanged with this update. 

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