Spectra Energy (NYSE:SE) owns and operates a portfolio of complementary natural gas energy assets and infrastructure. Spectra natural gas operations include gathering and processing, transmission and storage, and distribution. It segments are based on geographic region and include: the United States Transmission, Distribution, Western Canada Transmission & Processing, and Field Services. Spectra receives approximately 80% of cash flows from fees, but approximately 20% of the Company's cash flows are directly impacted natural gas prices. As a result, low natural gas prices have significantly impacted earnings and its ability to finance future projects.
As one of the largest North American companies engaging in natural gas gathering and processing, transportation and storage, and distribution, Spectra's growth can be attributed to increased processing of natural gas reserves in North America, including unconventional shale gas. As more North American gas reserves become economically viable to develop, Spectra benefits from higher volumes of transported gas. Spectra reported net income $1.04 billion on $4.95 billion in revenues in 2010, compared net income of $848 million on $4.55 billion in revenues in 2009.
In 2009, SE earned a total of $4.6 billion in total revenues. This was a decline from its 2008 total revenues of $5.1 billion in 2008. This in turn had a negative impact on SE's net income. Between 2008 and 2009, SE's net income declined from $1.13 billion in 2008 to $923 million in 2009.
For Infrastructure companies like Spectra, a large portion of their revenues come from transportation, processing, and distribution fees. As a result, Spectra like less exposed to short-term changes in natural gas prices and more exposed to the long-term demand for natural gas, which is driven by demand for natural gas-fired electric generation. Spectra's largest markets by revenue - the northeastern and the southeastern United States, the Pacific Northwest, British Columbia and Ontario - are projected to have higher-than-average annual growth rates in natural gas demand, which would benefit Spectra. The projected rise in natural gas demand in these areas can be partially attributed increased economic activity as well as a push to use more environmentally friendly energy sources than coal. As a result, revenues from operations in these areas have grown, despite a relatively weak natural gas prices.
While natural gas supplies traditionally came from the Gulf Coast region, supplies from the Rockies, Mid-Continent, Appalachia, Texas and Louisiana are on the rise. This supply shift is occurring as a result of improved drilling technology and increased exploration for unconventional sources of natural gas in North America. As the demand for natural gas derived energy rises, production from shale or other unconventional sources has the potential of increasing. While new supplies of natural gas partially mitigate resource depletion risks for pipeline operators, Spectra and its competitors have had to quickly change their transportation infrastrucutre to adapt to new sources of natural gas. One of Spectra's key long-term growth strategies is to position its business to take advantage of shale gas sources. As a result, the Company expects to devote a large amount of its capital and investment expenditures to the development of pipelines and processing facilities in these areas.
Companies engaging in the gathering and processing of natural gas and in marketing and transporting natural gas and NGLs rely heavily on their ability to complete contracts with producers. As unconventional gas discoveries have grown and natural gas becomes a more economically viable energy source, Spectra has the potential of facing heightened competition from traditional infrastructure companies, but also from oil majors and other companies looking to enter the industry.
Independent Infrastructure Companies Include:
Oil Majors Include:
Other Competitors Include: