Good morning. My name is Grant, and I will be the conference operator today. At this time, I would like to welcome everyone to Keyera Corp.'s Second Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. I would like to turn the call over to Calvin Locke, Manager of Investor Relations. You may begin.
Thank you and good morning. Joining me today will be Dean Setoguchi, President and CEO, Eileen Marikar, Senior Vice President and CFO, Jamie Urquhart, Senior Vice President and Chief Commercial Officer, and Jarrod Beztilny, Senior Vice President, Operations and Engineering. We will begin with some prepared remarks from Dean and Eileen, after which we will open the call to questions. I would like to remind listeners that some of the comments and answers that we will give you today relate to future events. These forward-looking statements are given as of today's date and reflect events or outcomes that management currently expects. In addition, we will refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements, refer to Keyera's public filings available on Sedar and on our website. With that, I'll turn the call over to Dean.
Thanks, Calvin, and good morning, everyone. We continue to operate in an environment of sustained high energy prices driven by tightened supply and continued strong demand. This has become even more pronounced with the global drive towards energy security. Keyera is well positioned to benefit from these tailwinds. Our full integrated assets and logistics expertise allow us to efficiently connect customers' NGL production to the highest value end markets. This unique advantage allows us to maximize value for our customers and deliver strong, stable returns for shareholders. This quarter saw strong performance from all three of our operating segments. As a result of record iso-octane margins, today, we increased our marketing segment guidance. We now expect to deliver realized margin of between CAD 380 million and CAD 410 million for the year.
This is up from the previous guidance of CAD 300 million-CAD 340 million and puts us ahead of the record margin of CAD 373 million achieved in 2019. The Gathering and Processing segment set a new quarterly record for realized margin as our customers continue to steadily grow production. Contributing to these results were record throughput volumes at our Pipestone and Wapiti gas plants and strong performance across our south region assets. As we continue to see increased demand from producers in the northern region, we're evaluating opportunities to expand the capacity of our Pipestone gas plant. At Wapiti, we recently began utilizing the second processing train to accommodate increasing demand for our services. Moving to our Liquids Infrastructure segment, this business delivered another steady quarter backed by continued strong performance from our fractionation, storage, and condensate transportation services.
We continue to engage with customers to gather support for an expansion to our fractionation business. We're competitively advantaged to efficiently add fractionation capacity given our existing footprint, including extensive storage and connectivity to high-value NGL markets. Our soon-to-be-completed KAPS project provides the next layer of contracted fee-for-service cash flow growth. The project is now over 70% complete and is expected to be operational at the end of the first quarter of 2023. Costs for the projects are now estimated to be approximately CAD 900 million net to Keyera. The increase in cost is mainly driven by weather-related impacts. KAPS is a game changer for Keyera as it is the missing link in our value chain. It will connect NGLs from our Montney G&P business and other third-party facilities to our core Liquids Infrastructure business in Edmonton and Fort Saskatchewan.
It also provides meaningful future growth opportunities like our Zone 4 expansion, which would extend the pipeline to the BC border. Recently, we're pleased to see the Competition Bureau take decisive action to protect competition in our industry and the interest of customers as it relates to our KAPS pipeline project. This decision reinforces the competitive value of KAPS and a strong desire from industry for an alternative NGL transportation solution. I'll turn it over to Eileen to provide more information on our second quarter and updated 2022 guidance.
Thank you, Dean. In the second quarter, Adjusted EBITDA was CAD 316 million, compared with CAD 224 million for the second quarter of 2021. The year-over-year increase was largely driven by strong contributions from the Marketing segment, where iso-octane margins achieved a new quarterly record. We continued to preserve balance sheet strength, ending the quarter with a net debt to Adjusted EBITDA ratio of 2.3x , which is below our target range of 2.5-3x . This calculation is consistent with our debt covenants, which exclude our outstanding hybrid debt. Moving on to our guidance for the remainder of the year.
As Dean mentioned, for 2022, realized margin for the marketing segment is now expected to range between CAD 380 million and CAD 410 million, up from the previous range of CAD 300-CAD 340 million. The increase takes into account the 6-week planned turnaround at AEF beginning in mid-September and the return of motor gasoline and iso-octane premiums to more normalized levels compared to the record pricing achieved in the second quarter. The strong cash flow being generated in the marketing segment enables us to fund infrastructure projects like our KAPS pipeline project and enhances our ability to consistently deliver superior return on invested capital. As a result of higher marketing segment margins, the cash tax expense for 2022 is now expected to range between CAD 55 million and CAD 65 million, up from the previous forecast of CAD 30-CAD 40 million.
Maintenance capital expenditures remain unchanged with a range of CAD 100 million-CAD 120 million. Growth capital expenditures for 2022 are now expected to be between CAD 680 million-CAD 720 million, previously CAD 620 million-CAD 660 million, excluding capitalized interest. The increased growth capital guidance is mainly due to the higher estimated cost to complete the KAPS project. The majority of KAPS-related costs are forecast to be incurred in 2022. Given strong performance from our business, we now expect to exit the year with net debt to EBITDA within our target range of 2.5-3x . I'll now turn it back to Dean for closing remarks.
Thanks, Eileen. Grounded in financial discipline and with several strategic growth opportunities underway, Keyera is well-positioned to continue to generate strong shareholder value for decades to come. On behalf of Keyera's board of directors and the management team, I'd like to thank our employees, customers, shareholders, and other stakeholders for their continued support. With that, I'll turn it back to the operator for Q&A.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a three-tone prompt acknowledging your request. Your questions will be pulled in the order that they are received. Should you wish to decline from the polling process, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Robert Hope from Scotiabank. Please go ahead.
Morning, everyone. First question's on the G&P business and the record results that you had there, despite the fact that you did have some outages. Can you help us, you know, better understand where the strength was in Q2, how much of a drag the outages were and kind of what a, what I would characterize as a run rate number there would be? I guess secondly there, like, are you seeing the ability to move up fees either kind of in the quarter or longer term?
Well, thanks. Yeah. Eileen, do you wanna just speak to just the outages and.
Yeah. Thanks, Rob. With regard to the outages, it was approximately 15 days. We estimated around CAD 5 million for Wapiti from an EBITDA impact in the second quarter. We had the turnaround at Simonette as well, which did go on a little bit longer than expected. I think it was 14 days planned, but it went on for about 23 days.
Rob, to your first question with respect to where we're seeing the uplift in volumes, frankly, it's across our entire asset base. You know, Wapiti and Simonette, you mentioned the second train at Wapiti. You know, having clear line of sight that we're seeing some positive growth from the producers behind that facility, at Pipestone we're full, and so obviously we referenced that we're looking at a potential expansion there and having some constructive conversations with producers that would support that. But really more importantly, well, not just as important, I think in my mind is in the south. Starting to see the fact that with our integrated facilities getting close to getting to capacity on those facilities as well.
Looking at some minor capital costs to debottleneck those facilities that we believe will be required in the near term. To your point on fees, yeah, then definitely as we are filling up and the demand for our services and contracts roll off, which some do in early 2023, there's an opportunity to garner higher fees. When we negotiated those deals, there was ample capacity in our facilities and competitors' facilities that drove us to probably offer fees that at this point we would see some opportunity to have those fees go up going forward.
I appreciate that. A shorter question. Dean, in your message to shareholders, you noted that with the conclusion of the CAP sales process, you would look to continue your strong track record of collaborating with partners. Does this infer or imply that you're not interested in the second half and you'd, you know, prefer just to maintain your ownership and yield the benefits downstream of the volumes?
I guess you get paid to ask questions like that. I mean, we're not gonna comment on anything related to M&A.
You know, generally, we just wanna remind everyone that we're the operator of that project from a construction, an operation, and a commercial perspective. We do have a very strong track record of working with partners. Should we have a different partner on our KAPS project, we would work with them as well.
All right. Thank you. Appreciate the color.
Thanks a lot, Rob.
Your next question comes from Robert Kwan from RBC Capital Markets. Please go ahead.
All right. Great. Thank you. If I can start with some questions here on KAPS. Just in terms of the new cost, I know you broke down some of the reasons, but there was contingency in the old numbers. Is there a contingency in the new numbers? And just at a high level, how would you portray this new cost estimate versus the old one? Is it, you know, kind of just realistically where you think you are, or do you view this now as a conservative estimate to complete?
Yeah. I'll let Jarrod respond to that. Jarrod?
Hello, Robert. There's contingency in the estimate that would be difficult for any project like that. I'd say I would characterize it as, you know, what we've learned throughout the project and what we think we have left to go. You know, when we last spoke to you, we've learned a lot since. Weather's been a challenge for us and, you know, continues to be our largest risk. We've been doing everything we can to manage that.
Got it. I don't know if this is for Eileen, and it may be related to capital with the last question. Just the statement you made that you now expect net debt to EBITDA to exit the year in the 2.5-3 times range. Is that just based on the growth capital plan that you've put forward and no M&A, or is that a more absolute statement that you fully intend to exit in that range, based on everything that you're planning on executing to the end of the year?
Yeah, I'd say that is an absolute statement. Quite confident that we will exit the year with our leverage within our target range, just based on the very strong Marketing results, again, which help us to fund projects like KAPS, and given everything that we've sanctioned to date.
Got it. I might just finish here on marketing. How much of the remaining margin in the second half has been hedged out? Then just on your statement that Mogas pricing and iso-octane prices are back to historical levels. By historical levels, is that kind of the levels that you would see as being consistent with the prior 180-220 range, or is that something different?
Hedging. Yeah. We really don't disclose the percentage that we're hedged. I would say we are well hedged in the second half of the year. The one thing I'll remind you of is we do have the AEF turnaround, so that starts mid-September. That'll impact both the third and fourth quarter. As it relates to the, you know, motor gasoline, I would say, you know, it's we had updated our base guidance, right, to CAD 250 million-CAD 280 million. I'd say the motor gasoline pricing is still relatively strong, but certainly not the peak highs that we saw in May and June.
Okay.
I'd-
Sorry.
Sorry. It's at the higher end of the historical range right now, Robert.
Okay. It's consistent with the revised long term, not the original long term. As you mentioned, it's the high end of the revised long term is kind of where we're sitting right now.
Correct.
Okay, great. Thank you.
Your next question comes from Robert Catellier from CIBC Capital Markets. Please go ahead.
Yeah, thanks. I'm just gonna go back to KAPS again and, I guess reiterate the question. What is the level of confidence in the revised cost figures given there's still about CAD 260 million net to Keyera left to spend? Is there anything that we should take away from the fact that the estimate has moved from a range to now a point estimate? Does that imply a higher level of certainty?
Yeah. Robert, it's Jarrod again. What I'd suggest with one of the things we're trying to characterize here really is that the range that we previously put out there, given the experience we've had here through the winter, the spring and the summer, is that we don't think that the bottom end of that range is achievable anymore. It's really guiding folks to the number that we put out now.
Okay.
Obviously-
Go ahead.
Great. Obviously, Rob, it's literally with every week and every month that goes by, you know, our confidence increases because there's just less and less of the project to execute on. Right? You know, anybody who lives in Alberta knows that there's just wild weather swings, and we had a really wet sort of spring and early summer here. Thankfully, you know, conditions are a lot drier now, so we'll, you know, hopefully those conditions will continue.
Just how far along are you in your discussions for a Pipestone expansion? You know, do you view that as direct competition to the other expansion that's being discussed in the industry? Because of your customer composition, you feel it's a distinct and different project?
You know what, our facility is very well located and
You know, we have lots of interest in capacity at that facility. We are, again, advancing opportunities to add capacity to that facility, which we think we can add capacity at a very competitive cost. We feel very confident on that opportunity.
Okay. Last one for me then is just with the high commodity prices and the backwardation, how is that impacting your ability to hedge or is it causing you to tweak the hedging strategy at all?
We continue to hedge our inventory. I think that's something that, you know, again, month to month is typically how we have been managing it, largely because of the backwardation. The other pieces are, you know, we'll try and lock in the margin, especially when we see very strong, the RBOB Cracks or the, or the WTI pricing. Those are things that our risk management policy allows us to go out, you know, 24 months. The liquidity certainly is there. We have been layering in hedges at pretty strong value.
Yeah, I would say, just to add on to what Eileen said is that we've hedged out at this point, being midyear, we've hedged out into 2023 at higher levels than we would have historically, and we've taken advantage of some very strong pricing. The other thing that we've also modified some of our hedging strategy is to use some collars where we're again protecting our floors, but giving us some upside room as well. Yeah, we've adjusted a bit, but we do still protect our margins.
Okay. Thank you.
Your next question comes from Andrew Kuske from Credit Suisse. Please go ahead.
Thank you. Good morning. I guess it's a question for Dean to start off with, and it's just how do you think about the frac capacity positioning and prospective developments on a go-forward basis and really by yourself and just competitors in the next few years as sort of the chess match gets underway on who builds first? How do you think all that starts to play out?
Yeah, I mean, well, first of all, frac capacity is very, very tight. We're using every barrel of capacity that we have in our entire system and which is obviously great for our business. So yeah, we definitely see demand for future frac capacity to be built. We certainly have, as I said in my earlier remarks, a very competitive footprint because we have a brownfield site. You know, we have all the storage already there, all the connectivities on that site. We have the people to run it. So, you know, we are as advantaged as anybody in the industry to add more capacity. Obviously, we have to work with our customers, continue to work with our customers to get the contracting to back that kind of investment.
We certainly have a high level of interest already. You know, it's something that we continue to work towards. Again, I think it's a great opportunity for us.
I appreciate that. Maybe just on a bigger, broader basis, when you think about, you know, the recent agreement between LNG Canada and Coastal GasLink and just sort of the outlook on a longer-term basis for LNG movements off the coast, I mean, obviously, we've been sort of talking about this for a decade plus at this stage. When you think about the near term and then the maybe medium and longer term, what's sort of the outlook for Keyera? Do you wind up with a view of maybe prices get sloppy for a little bit or they tighten up, and then there's a more robust supply, meaning a more robust opportunity set for, you know, processing and frac? I guess color on the short term, medium term, and longer term would be appreciated.
Well, near term, as you heard from Jamie, you know, we're seeing a lot of activity. I'd say near to midterm, we're seeing a lot of activity in our basin. It's funny, you know, over the last year, you know, everyone kept on telling us that there's gonna be no growth in our basin, but that's not what our customers are telling us. When I'm reading all of our customers' quarterly reports, everybody's projecting some growth, and they keep on increasing their targets. You look at dry gas in Western Canada, it's increased from about 16 Bcf last year to over 17 Bcf a day today.
With expansions on the NGTL system that are gonna be in play later this year, which is about 1.5 Bcf a day, LNG Canada is licensed for 4 Bcf a day. You know, I think there's a very strong potential for them to expand, you know, and sanction the second, the third and fourth train at that site. When you look at what's happening in the world, the demand for LNG obviously is very strong, and a lot of it's tied as well to, you know, security of supply. You know what? I think there's an unbelievable opportunity for our responsibly produced gas that's, you know, from Western Canada to supply, you know, the world with some of that gas.
Whether it goes off the West Coast or whether we displace more gas that gets exported from the U.S. with Gulf Coast or East Coast, it's all part of you know North American system that will export more LNG over time. What does that translate to? I think in the short and long term it translates to you know to a lot of great opportunities for infrastructure. Again, we're already seeing it. We are seeing record volumes and a lot of parts of our business on our liquids business and also our G&P business, and we think that's gonna continue.
There might be a slight lull as you know the producers try to gear up for LNG Canada coming into service and you know to bring on all that gas you know ahead of that project being online. I think that would be very short and obviously very temporary in nature. That'd be my sort of view. Again I think that you know we have a very robust outlook for natural gas.
Okay. Very much appreciated. Thank you.
Thank you.
Your next question comes from Benjamin Pham from BMO. Please go ahead.
Hi. Thanks. I wanna first start off with Simonette's comments around a potential increase in utilization or maybe even an expansion. Can you talk about is it more of a large expansion similar to what you did a couple years ago? Or is this more potentially a de-bottleneck?
No, just to maybe correct the information, I'm not sure where you're getting that from, Ben, but we have ample capacity at Simonette. We have over 200 million a day of unutilized capacity there. That will be a very well-connected plant, including with our KAPS pipeline system. You know, we think it's a great opportunity that, you know, Whitecap has purchased or is purchasing or closing the purchase of the XTO production reserves and lands in that area, which are in very close proximity to Simonette. You know, we wanna work very closely with Grant Fagerheim and his team to provide a you know, integrated service offering for them to maximize the returns for them and also, you know, benefit us as well.
Okay. Thanks for clarifying that. The reference to the Simonette production is Whitecap?
Yeah. I mean, if you look at the land map and you look at where the XTO lands are, they are in that vicinity and Whitecap has, you know, published that in their slide deck.
Okay. Got it. I was thinking about somebody else. Okay, maybe on going back to KAPS, are you able to comment on progress on contracting efforts maybe over the last quarter?
I mean our practice is not to provide quarterly updates on our contracting, but I can say that we feel very optimistic with you know, the engagement, the level of engagement interest that we have in our pipeline. You know, we get a lot of questions about you know, some of the announcements that have been made you know, relating to the competing pipeline. I just say that you know, in general, customers typically want to diversify their service. They do not wanna put all their eggs in one basket you know, so they wanna have some redundancy. I think that it's also attractive that we're gonna have a brand new pipeline and I think that obviously has some value from integrity perspective.
Anyway, we feel very confident in terms of, you know, our ability to contract KAPS and we're making some good progress on that side.
Okay. Related to that, you mentioned comments on the Competition Act and limiting Pembina from not sustaining ownership. Do you think that's gonna limit any other folks out there in Western Canada any more broadly, and at least they can look at KAPS?
Well, I mean, first of all, you know, I really commend what the Competition Bureau has done, but I think it really speaks loudly for how all of the customers, a lot of the customers in our basin really spoke up for the need for this critical piece of infrastructure. 'Cause it is a you know, it's a basin asset and you know, in terms of the billions of dollars of development that are gonna occur, you know, in the decades to come, this is a key piece of that equation. Again, I think the Competition Bureau spoke up in a big way, but it's because of the feedback that they received from industry.
Maybe lastly, I mean, it looks like you're marking upside and delevering down to the lower or 2.3x or below that is basically watching the KAPS increase. I mean, how do you like, what are your thoughts about share buybacks into early 2023?
Yeah, I mean, share buybacks are certainly a tool or an option that we consider probably more so than in the past. I think at the end of the day, it'll always compete with growth projects. The way we look at it is, if we have a great infrastructure project with the return and the contract profile that we're looking for, that's where we would likely allocate to first.
Okay, great. Okay. Thank you.
Your next question comes from Linda Ezergailis from TD Securities. Please go ahead.
Thank you. As a follow-up to capital allocation, can you provide us a sense of how you're now or recently thinking about a dividend increase and a dividend policy, given your confidence and line of sight to completing KAPS?
Thanks, Linda, for the question. Yeah, I think I'll just, you know, keep it pretty general that, you know, one of our core financial priorities is to generate cash returns for our shareholders, and we're really proud of that long history of growing the dividend over the long term. As we think about it, you know, the things we try to balance are, of course, maintaining the balance sheet strength and reinvesting in our business and growth, and then returning cash to shareholders. What we're really focused on is growing that DCF on a per share basis.
Projects like KAPS, as well as continuing to fill the white space in our gathering and processing facilities are gonna help us do that, and maintaining that conservative payout ratio, so that it's sustainable. Again, I think just given the strength of our marketing cash flow when we're set up well from our balance sheet perspective going into next year, that will be the balance between, again, those other priorities of reinvesting in the business and returning cash. At the end of the day, the increase in the dividend remains a board decision.
Thank you. Just maybe on a separate note, you know, there's systemic inflation everywhere. Can you give us an update on what you're seeing in the business in your operations? You know, what proportion of your EBITDA or revenues in your G&P and Liquids Infrastructure business have some existing contractual ability to pass through whatever cost to customers? Maybe the nature of where inflation is greatest, including any sort of views on labor availability and productivity contributing to any sort of inflationary pressures.
Yeah. Maybe just to speak to just general inflation first in operations, I'll just turn that over to Jarrod.
Yeah. I think we're seeing it like everyone else is, you know, really across all aspects of our business. I'd say, you know, in general operating costs, it's not really material to us yet. You know, when you speak to labor availability and productivity, again, another issue that we're seeing the same as everyone else. It is a challenge to find people and keep people, but we're able to manage through it and haven't seen any, you know, significant impact outside of, you know, that's certainly been a contributing factor in the KAPS cost increase.
Yeah, just maybe to add to what Jared said, you know, as you know, we undertook some significant measures to reduce our cost profile through 2020, 2021. You know, we feel, you know, very happy today that we did that, and it's obviously offsetting some of the effects of inflation that we're seeing today. In terms of business and contracting, maybe I'll just turn it over to Jamie.
Yeah. Linda, you know, we do have some fixed fee deals. We do identify where we would be at risk with respect to some inflationary pressures, particularly on the power side. We hedge our exposure on that regard. We just view that as risk management across our entire business. Sometimes we focus a lot on risk management on marketing, but we also look at risk management with respect to other parts of our business when we do fixed fees.
You know, we talked a little bit about, you know, as the market changes and as we go forward, you know, we certainly are focused on having our customer have exposure to inflationary pressures along with us so that you know that we're not entirely exposed to those pressures. Hopefully that helps give some flavor on our future as we look at inflationary pressures.
Yes, thank you. Maybe a bigger picture, another question around value chain, full service offerings. You know, clearly KAPS expands the scope of what you can offer along the value chain. What's your latest thinking about further extensions, either you know getting invested in LPG or potentially expanding AEF or other initiatives to do more along the value chain than you are currently?
Yeah, I mean, strategically, Linda, we're always looking for opportunities to expand our value chain and also on the downstream side of it. It doesn't mean that we have to own all the downstream facilities, but we wanna make sure that we have the most efficient means of connecting to that downstream market. Could there be more opportunities in refined products and, you know, as we look longer term, low carbon refined products or low carbon fuels? Absolutely. You know, we have a lot of logistics expertise and marketing expertise and operating expertise in that side of the business. We wanna leverage those skills and advantages and we think there's opportunities there long term.
Thank you. I'll jump back in the queue.
Thank you.
Your next question comes from Matt Taylor from Tudor, Pickering, Holt & Co. Please go ahead.
Hey, thanks for taking my questions here. I wanted to go back to KAPS. You have the project entering service at the end of Q1 2023 there. Can you give some guidance on the EBITDA ramp in 2023 and 2024, as it pertains to that slide you have in your deck on the 6%-7% EBITDA growth through 2025?
Thanks, Matt. Yeah, there certainly is a ramp. So, you know, it would start out smaller in 2023. In 2025, we would see more of that cash flow ramp, and that's what's embedded in our 6%-7% EBITDA growth profile. Not just KAPS, but there was also filling more white space at Wapiti, et cetera, included in that growth.
Thanks, Eileen. Maybe just to dig in a little bit deeper there, you had guided to invested capital returns of 10%-15% or just using multiples of, you know, around 10x. In the first couple of years, are you expecting below that range and then you ramp into that 10%-15% range over time?
Yes, that's correct. It would be something that ramps up into that range. You got it.
Okay. On that returns, now that you have an updated standalone CapEx estimate, have you given some thought on updating that 10%-15% invested capital return? I guess what I'm asking is what's the return profile looking like for that base system with that new standalone estimate? Where could it trend with other expansions like Zone 4?
I think maybe just generally speaking, as we look to invest in new investments, we're looking to target towards the higher end of that investment. Again, it's more on that infrastructure. We're looking for that, the longer term contracts and take or pay. Again, just for newer investments as we're looking down the road, whatever, you know, whether it's Frac III or Zone 4, whatever it may be, I think that's how we're thinking about it go forward.
Yeah. Matt, as it relates to KAPS, I mean, you know, we've been very clear that with the contracting that we have in place today, we aren't in threshold. But as I mentioned earlier, you know, we feel very confident in terms of the outlook for the basin and the discussions that we're having with our customers that, you know, we believe that we're gonna get in that range.
Okay, great. Thanks for that, Dean. Last one for me. I think it was mid last year, you were talking about South Region G&P capacity getting up to about 70% by mid this year. Are you still on track to see that? I mean, you've seen some pretty robust volumes there in the South Region. Are you still tracking to the 70, or can we see that getting higher?
Yeah, Matt, it's Jamie. Yeah, certainly we're on track, and as you allude to, I think we're optimistic that we'll be able to, by end of year, be trending ahead of what we would have envisioned a year ago. That's a very robust area. You know, you think about where gas prices, net gas prices are today at. You know, I know it's been moving around a bit here, but call it CAD 5 plus, you know, over the past while, and you look forward as well on the forward strip. Those are very strong economics. You know, the advantages for the producers in that area is that there's very established infrastructure, and obviously we own a lot of it.
It's not just gas processing and ability to get, you know, deeper cuts for your NGL liquids extraction. We also have our Keylink pipeline system, and which is tied to our fractionation at Rimbey, which is pipeline connected to our Fort Saskatchewan complex. Producers there can drill wells and get them on stream in a very short period of time and generate a return on their investments in a matter of a couple of months.
Just to be clear, that tailwind would be incremental, right? To your guidance through 2025 if you're starting to see capacity utilization above 70%.
That's correct.
Okay, great. Thanks for taking my questions.
Thanks, Matt.
Your next question comes from Patrick Kenny from the National Bank. Please go ahead.
Thanks. Good morning. Just to come back to your commentary around the refining market dynamics out there right now, I guess both in Europe and North America. Could we get an update just on how Galena Park is performing in this environment, maybe relative to your initial expectations? Then also, you know, even though your top priority is executing KAPS, just any thoughts around bolting on additional infrastructure, say, over the near to medium term, that might be more directly tied to this increase in global demand for North American exports?
Pat, I'll take the first question on the refining market. Galena Park is, you know, obviously we move our iso-octane out of that facility, but we also did the butane, in-line butane blending to gasoline project a couple of years ago. That project, you know, came out of the gates a little slow because of COVID and gasoline demand. We've seen obviously, as customers understand what our offering is and how sophisticated our blending system is in relation to other options, we've started to see an increased demand. Right now it's summer, so the RVP limits on gasoline limit our ability to, or anybody else's ability to blend butane into gasolines.
Certainly, our expectation as we come out of summer and RVP limits increase on gasoline, that we're gonna see an increase in demand and get you know basically to our expectations with respect to when we sanction that project.
In terms of bolt-on investments. Oh, sorry.
No, thanks for that, Jamie. Yeah, feel free, Dean.
Okay. Thanks, Pat. With respect to bolt-on opportunities to KAPS, you know, we still think that Zone 4 is still a very good opportunity. That Zone 4 would connect to the B.C. border and connect to the independent NGL gathering system there. Obviously, developments in B.C. have been moderated over the last year and a half as we await the Blueberry decision. My understanding is that they're continuing to make progress on that front. I think some of the developments there have been shelved a little bit or maybe not as aggressive. We certainly believe that that's gonna happen in the future.
When that does happen, we're gonna be well-positioned for it. I also talked about the downstream part of our business in terms of the whole frac storage, you know, rail logistics side of it. You know, we think that there's gonna be continued supply throughput of NGL supply coming through Fort Saskatchewan. Again, we're very well positioned to capture the incremental infrastructure demand associated with those volumes.
Okay, great. Thanks for that, guys. Just on your carbon hub opportunity with Shell, any update on, say, near-term milestones that we should be, you know, keeping an eye on here through the back half of the year with respect to your role in the project?
I can say that our teams actively work together very regularly. I mean, they're collaborating on a weekly basis. You know, we don't have any specific updates at this point. Some of it, too, is tied to all the companies that receive park space in the Industrial Heartland. You know, there's an incredible process to work through all the details associated with how that's gonna work. Shell is working with the government on that and also working with us, so we're trying to sort through all these details as they come. I can tell you that we're both very actively engaged in terms of working together on opportunities in that area.
I would say that, you know, our scope of what we envision for our Heartland lands, you know, in and around Fort Saskatchewan, near and adjacent to our Josephburg terminal is that, you know, we're also talking to other potential partners, again, to create the industry solution to, you know, in terms of industrial park in that area for low-carbon development. The opportunity with Shell is phenomenal. We continue to work with it, but we're also working with others, you know, in terms of opportunities as well.
The thing I'd add, too, Dean, is it's not limited just to low carbon. You know, we're working on lots of things with industry with respect to conventional hydrocarbons. We see that potentially can also create a bridge for then having facilities and infrastructure built that then will transition into a low-carbon offering as well.
Great. Thanks for that color. I'll leave it there.
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