Ladies and gentlemen, thank you for standing by, and welcome to the Pembina Pipeline Corporation 2020 Q4 Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this time, you will need to press star, then one on your telephone.
If you would like to withdraw your question, you may press the pound key. If you require any further assistance, please press star, then zero on your telephone keypad, and an operator will come on back on the line to assist you. I would now like to hand the conference over to your first speaker today, Mr. Cameron Goldade, Vice President, Capital Markets. Please go ahead, sir.
Thank you, good morning, everyone. Welcome to Pembina's Conference Call and Webcast to review highlights from the Q4 and full year of 2020. On the call with me today are Mick Dilger, President and Chief Executive Officer, Scott Burrows, Senior Vice President and Chief Financial Officer, Jason Wiun, Senior Vice President and Chief Operating Officer, Pipelines, Jaret Sprott, Senior Vice President and Chief Operating Officer, Facilities, and Stu Taylor, Senior Vice President, Marketing, New Ventures and Corporate Development Officer.
I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Pembina's current expectations, estimates, judgments, and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties which could cause actual results to differ materially from expectations. Further, some of the information provided refers to non-GAAP measures.
To learn more about these forward-looking statements and non-GAAP measures, please see the company's management discussion and analysis dated February 25th, 2021, for the period ended December 21st, 2020, which is available online at pembina.com and on both SEDAR and EDGAR. Before we discuss Q4 and annual results, I'd like to first turn things over to Mick to make some opening remarks.
Morning, everyone. Thanks, Cam. With our Q4 release yesterday, we're happy to close the book on 2020 and looking forward to a better 2021. In a very challenging year, I'm proud of what we were able to deliver. From the beginning of COVID-19 pandemic, we were steadfast in our assertion that we'd remain within our pre-pandemic 2020 Adjusted EBITDA guidance range.
In the face of numerous pandemic-related challenges and lower commodity prices, we took the difficult but necessary steps to do just that. Thanks to a resilient business model that protected our top-line revenue and a focused effort to reducing operating and administrative costs, we were able to deliver annual Adjusted EBITDA of nearly CAD 3.3 billion, or 97% over the midpoint of our range. As always, Pembina takes great pride in consistently doing what it says it will do.
If there's a silver lining to be found in 2020, it would be the clear validation of our long-term strategy, diversification efforts, and steadfast commitment to the company's financial guardrails. The resilience, stability, and predictability of Pembina's business were once again proven, as they were during the 2009 financial crisis and 2015 commodity price downturn. I'm equally proud of what we achieved for our other stakeholder groups.
The health of our employees and the communities has been top of mind throughout the pandemic. I'm pleased to report that the company has not experienced any operational disruptions to its assets as a result of COVID-19, and despite all the new pandemic-related risks. Pembina had its best safety record ever in 2020. Further, we took all the necessary steps to limit the spread of COVID-19 within our communities while fulfilling our role as an essential service provider.
At the outset of the pandemic, we quickly determined the essential staff and critical infrastructure required to provide uninterrupted service to our customers, processing and transporting all product tendered while supporting their precious cash flow. We worked with our customers to understand their short- and long-term infrastructure needs, and thanks to longstanding and close personal relationships, we struck many new bargains that were good for both our customers and for Pembina.
Despite deferring some early-stage projects, we continued investing in projects that were well advanced or nearing completion with approximately CAD 1.3 billion of projects entering service in 2020 and early 2021. This provided our customers with important infrastructure and supported our 2020 and 2021 financial results and strategic direction, thus setting a table for a better 2021. Finally, for our communities, we delivered on every single commitment made. We also matured our ESG reporting and strategies.
Within an otherwise successful year, I feel we need to acknowledge the asset impairments we took this quarter. Due to COVID-19, alongside changing commodity price dynamics, combined with changing government priorities, Pembina needed to recognize an impairment in the value of certain assets, including our investment in Ruby Pipeline, Jordan Cove LNG, and our CKPC Petrochemical investment.
We believe these opportunities remain strategy, make economic sense if de-risked, and are aligned with Pembina's ESG priorities. While we believe the time for these projects may come, since we can no longer predict with certainty when that time may be, we were compelled to reflect their impairments through a non-cash charge. Despite the impairments, we remain committed to accessing global markets.
The combination of Pembina's integrated value chain, the proximity of the West Coast to reach Asian markets means we are well-positioned to deliver value to our customers, including end users and Pembina. Most notably, we are excited about the startup of our propane export facility, the Prince Rupert Terminal, which will come into the service near the end of this quarter and provide access to a strong international demand for propane.
Pembina entered 2021 in a strong financial position, providing the foundation for resumption of accretive growth. Following the pandemic-related project defaults earlier in the year, we were delighted in December to announce the reactivation of a better phase VII expansion, as well as the Empress Cogeneration facility. The phase VIII and phase IX expansions of Peace Pipeline continue to be deferred. We are using this time to optimize and reduce costs just as we did with phase VII.
We are also reimagining our Prince Rupert expansion project. We are now evaluating an expansion of the facility capable of accommodating larger vessels, which would improve economies of scale and lower per-unit operating costs. Pembina expects to make a decision in the second half of 2021 in regards to all three projects. Taken together, they are examples of the opportunities embedded in Pembina's industry-leading footprint.
In addition to our announced projects, we are working on an extensive portfolio of unsecured opportunities, which are all accretive and collectively comprise over CAD 4 billion of potential capital investment, including both brownfield and greenfield projects. Momentum with customers behind these opportunities continues to build, and we are confident in a strong rate of conversion into secured project bucket.
While COVID-19 is still an urgent global concern and much uncertainty remains, there has been significant progress made on understanding and mitigating the threat, and there is a growing expectation of a return to some normalcy and associated rising energy demand. Higher prices and sector consolidation continue to make our producer customer base stronger, which in turn benefits Pembina. In 2020, we essentially hit the pause button, but in 2021, renewed optimism gives us confidence to hit play once again. With that, I will pass the call over to Scott to discuss the financial highlights for the Q4 and full year.
Thanks, Mick. Pembina reported record Adjusted EBITDA in the Q4 of CAD 866 million, which represents a 10% increase compared to the same period last year. The increase was primarily from the assets acquired in the Kinder acquisition, new assets being placed into service in the pipelines and facilities division, and higher deferred revenue recognized on the Peace Pipeline System.
We also benefited from monetizing a portion of NGLs storage positions built up during the Q2 and Q3 of 2020, as well as lower operating expenses in pipelines and lower general and administrative expenses. This was partially offset by lower margins on crude oil sales and a lower contribution from Alliance Pipeline due to a narrow AECO Chicago natural gas price differential.
Pembina recorded a net earnings loss in the Q4 of CAD 1.2 billion due to non-cash after-tax impairment charges of CAD 1.6 billion on Pembina's investments in Ruby, Jordan Cove, as well as CKPC. Excluding impairments and associated deferred tax recovery, earnings in the Q4 would've been CAD 338 million compared to CAD 365 million in the Q4 of 2019.
Total revenue volumes of 3.6 million BOE per day in the Q4 were up 1% compared to the same period last year. The positive contributions from assets acquired in the Kinder acquisition and new assets coming into service were partially offset by lower volumes on other systems, due primarily to lower interruptible volumes on certain pipeline assets as a result of lower commodity price environment and lower volumes in certain facilities assets due to lower supply volumes, scheduled turnarounds, and COVID-19-related factors.
A strong Q4 contributed to solid results for the full year. 2020 Adjusted EBITDA of CAD 3.28 billion was 7% higher than 2019 and within our pre-COVID guidance range. 2020 adjusted cash flow from operations was 2% higher than 2019 at CAD 2.29 billion and full-year volumes of 3.5 million BOE per day were 1% higher than 2019. We delivered these results while remaining within our financial guardrails.
In 2020, fee-based cash flow comprised approximately 95% of Adjusted EBITDA for the year. Our dividend continues to be fully funded without relying on our commodity-exposed business. Fee-based cash will more than cover our annual dividend payment with a payout ratio of 72% on this basis, or an all-in payout ratio, including our marketing group, of 61%, providing ample room between the current dividend and cash flow being generated.
Roughly 75% of our credit exposure at year-end was with investment-grade and secured counterparty, and we maintained our strong BBB credit rating with a year-end ratio of approximately a proportionately consolidated senior debt to Adjusted EBITDA of 4x . Based on our outlook for the year, we currently expect to generate 2021 Adjusted EBITDA of CAD 3.2 billion-CAD 3.4 billion. At the low end of our adjusted 2021 EBITDA guidance range, our 2021 capital program is fully funded by cash flow after dividends.
Towards the middle and upper end of the guidance range, we expect to generate excess discretionary cash flow. Pembina has a proven track record of discipline and strategic capital allocation, this remains one of our top priorities. I'm confident in our ability to generate long-term shareholder value through maintaining and growing our dividend, as well as through further infrastructure investment and accretive growth projects.
Investing in growth projects ultimately increases the longevity of our already long-term and stable cash flow streams because it both enhances our strategic capabilities and also our service offering, also known as the Pembina Store. Beyond infrastructure investment, excess cash flow will be available for debt reduction or opportunistic common share purchases.
To support potential share purchases, Pembina announced yesterday the acceptance by the Toronto Stock Exchange of Pembina's notice to commence a Normal Course Issuer Bid to purchase up to 5% of its outstanding common shares. It is worth noting that in Q4, our cash flow was more than our dividends and our capital investments, making us free cash flow positive. As Mick said in his opening remarks, we are proud of the results we have delivered in a challenging year, and the outlook for 2021 is more positive.
Since our business update provided in December, third-party commodity price forecasts have improved, providing confidence in our 2021 volume outlook and supporting results in our marketing business. While still early in the year, given what's happened in the first two months of 2021, we are off to a great start. I'll now turn things to Mick for some closing comments.
Thanks, Scott. I'd like to take a moment to provide a few comments on the topic of ESG, which is playing an increasingly significant role in all areas of our business and our strategy, and is linked directly to Pembina's long-term value. First, following our inaugural report issued in 2018, this past December, Pembina released its 2020 sustainability report. The report includes enhanced disclosures on emissions, water, waste management, and workforce.
I'm very pleased with the evolution of our reporting and look forward to continuous improvement in future reports. In addition to reporting, Pembina advanced other significant developments. We appointed Janet Loduca as General Counsel and Vice President, Legal and Sustainability. With over 30 years of legal, environmental, regulatory, and sustainability experience, Janet is a strong addition to our team, and I'm confident Pembina will benefit greatly from her contribution.
We also progressed strategies to reduce greenhouse gas emissions intensity. By the end of 2021, Pembina will have taken concrete action within the year, as well as published five-year emission intensity targets. We made progress on numerous inclusion and diversity initiatives, including setting targets for both board and executive levels. Starting in 2021, a significant component of Pembina's short-term incentive plan will be tied to ESG metrics.
Pembina stands shoulder to shoulder with our customers and peers in ensuring Canadian energy is developed and delivered responsibly with leading ESG standards and practices in place. We are a proud provider of the services that get energy to where the world needs it and remain well-positioned to support the growing use of natural gas to reduce global GHG emissions. Our proximity to Asia and its growing energy demand represents another strategic opportunity.
Pembina has many of the core competencies needed to adjust to the changing energy mix and is positioned to provide infrastructure services for new forms of energy or carbon sequestration and how it might facilitate hydrogen production. As with everything we do, we will move forward prudently, ensuring we deploy capital as we always have by making our existing business more valuable, adhering to our financial guardrails, and in service of all of our four stakeholder groups.
In closing, Pembina proved once again in 2020 that we are resilient, we're agile, we're safe, and we're reliable. Pembina led our industry with a decade-long run of outperformance prior to 2020. Following a pandemic-driven pause, we will continue again working hard for another 10-year run.
We anticipate 2021 to be a turnaround year with a return to a more traditional growth trajectory in 2022. We will not waver in our commitment to long-term value creation that benefits each stakeholder group, and we are optimistic about the future and the many opportunities in front of us. With that, we'll wrap things up. Operator, please open the line for questions.
At this time, ladies and gentlemen, if you would like to ask a question, please go ahead and press star, then the number one on your telephone keypad. Again, that's star, then one to ask a question. Your first question today comes from the line of Jeremy Tonet with JPMorgan. Please proceed with your question.
Hi, good morning.
Morning, Jeremy.
Just wanted to revisit, I guess, the guidance a bit here and how the environment stacks up now versus maybe when you created it in November or so. Just wondering if you could quantify maybe a bit more, I guess, how the commodity price environment looks now versus then and how producer activity and outlook looks now, versus then. Just trying to see It seems like things have gotten better and just want to see if we can quantify a bit more the degree of how much it might have gotten better.
I'll start and then turn it over to Scott or others. It's a good start, Jeremy. I don't think too many people thought we'd be at CAD 60+ WTI and terrific propane prices, better gas prices. We're seeing some of our producer customers alongside the consolidation. We're seeing their stocks double here in the last three months, or triple in some cases. I'm watching release after release.
They're meeting their debt reduction targets and putting away some money. We think that'll turn into drilling later in the year. Cautious drilling, I'd say. Obviously, our marketing business is outperforming early in the year what we had in the budget because we budgeted at lower levels. We see volumes slowly coming up in some places. I think it'll be later in the year before we can determine whether producers have the confidence to start drilling more.
When that happens, that's really when we get the torque, right? Because we've got a lot of capacity ready and waiting. As volumes grow, because we're covering our fixed costs anyway. That'll go straight to the bottom line, and we'll have a lot more confidence, I think, a few months from now. We're delighted with the start to this year. It is much better than we had originally forecast.
Jeremy, maybe just a few tailwinds. Obviously, the stronger crude price and frac spread, both are up pretty material from the time that we set our budget back in November. Crude's up close to 50%. The frac spread's pretty close to that same amount. Now, again, we always caution people that we are 50% hedged on the frac spread, so we won't participate fully in that upside.
In terms of some of the headwinds, FX has moved in the wrong direction, so the Canadian dollar is now at CAD 0.80. At the time of budget, we were at about CAD 0.75 or CAD 0.74, so that's a bit of a headwind. The Chicago AECO has continued to drift down from the time that we set our budget. We do have some headwinds in addition to the tailwinds. Overall, the tailwinds are definitely more positive than the headwinds.
Got it. Maybe just kind of building on that for marketing, winter storms last week brought in a lot of volatility to commodity prices there. Just wondering if that had any impact on your businesses and how that might have impacted your Aux Sable contract.
Yeah, we participated in some of that, Jeremy. I can't pull out specific numbers, but again, we're pretty cautious on how we take advantage of commodity volatility. I'm not going to say windfalls, but it was definitely positive for us.
Got it. Just the last one as far as producer activity. Just wondering if you have a sense for rig activity on your footprint now, or what your expectations are for where that could trend over the course of the year and how that has changed versus original expectations.
Morning, Jeremy. Jaret Sprott here. Rig activity, actually, we pride ourselves in building our assets in the areas that have great resource, obviously. In that particular area, we're actually seeing rig activity equal to or slightly above where it was December of 2019, pre-pandemic. It's obviously great for the industry to see the activity coming back in, but when you dissect it down into some of those specific areas in which we have a very large presence, it's looking really good compared to the pandemic in March.
Got it. You said rig activity ahead of December 2019 already? Just wanted to clarify that point.
Equal to. You have to get very specific down into some of our individual assets. On the whole, the Northeast B.C. area of Veresen Midstream, in that area, it's very strong. Then as you move into the Kakwa, Pipestone, Wapiti areas of the liquids-rich Montney continues to be very strong, where we also have a very large presence.
Then with the acquisition of Jupiter by Tourmaline, Jeremy, obviously, Jupiter was a great operator. We liked working with them. Tourmaline is a great operator as well, and we're really looking forward to them bringing their expertise into that deep basin Cretaceous, where we also have a very large presence.
Got it. That's encouraging. I'll stop there. Thank you.
Your next question comes from the line of Matt Taylor with Tudor, Pickering, Holt & Co. Please proceed with your question.
Yeah, thanks for taking my questions here, guys. If I could just start off on capital allocation. Would you mind clarifying your growth comments a bit? In my seat, it looks like you've got brownfield growth that still have the contracts in place you could turn on, but it seems messaging is you have the ability to self-fund at the lower end of guidance and then the flexibility if you get to the upper end. Does it seem like growth is there that can be turned on if customers need the capacity, but you can bring down leverage or buy back stock if not? Are you guys thinking about it a different way in terms of thoughts on capital allocation?
Matt, I think as we've tried to reiterate, the first priority is obviously the dividend and capital to growth projects that fit within the platform, brownfield, greenfield expansions of the existing assets. If those expansions, both phase VIII and phase IX, and Prince Rupert expansion, continue to progress through this year, probably our first priority is to re-FID those projects and bring them into service.
Then after that, look at debt repayment and share buybacks. If those projects come back into service, we're not really spending capital on those projects in any material way until late 2022, and those will be spread out over a couple of years. Even in those scenarios where those projects come back online, depending the timing of that, we should be in a position to generate potentially free cash flow. We get into the discussion again of what to do after that.
Again, after we've made those decisions, really, we'll look at where we are within our financial guardrails. If we're below our debt metrics on our financial guardrails, we'll likely allocate that capital to debt repayment to ensure we're firmly within those guardrails. If we are within the guardrails, then we're going to have to look at where the share price is trading in our view of intrinsic value and opportunistically buy back shares or continue to pay down debt to position ourselves for future growth as well.
Thanks for that, Scott. Just to dig down a little bit more then, if you're turning on these growth projects, it seems like phase VIII and phase IX, you said they still have contracts in place, so it's not as if you're looking at projects that aren't backstopped by customers. Is that fair?
Yeah. We can turn them on. When we need them is really the question. Like with phase VII, we do work collaboratively. We're not the kind of company that gives you something you don't need. With phase VII, we surveyed our customers. There's not ever a perfect consensus, and I'm going back a year, and people said, "I know we're committed.
I know you could build, but we'd sure appreciate it if you delayed a year because we just don't need the capacity." We're using that kind of a collaborative approach in phase VIII and phase IX, to time that appropriately. With phase VII, when we first deferred it wasn't the best thing for Pembina in a way because it took away from our growth.
We came back and we lobbed CAD 150 million off of that project through working with our customers in scope and cost. It wasn't all bad. We're coming out with a better project. Our customers really appreciated the pause. When we get the signal, we'll turn phase VIII and phase IX on. We think the signal's going to come Q2 timing. Hopefully, that'll give us a consensus to resume in the Q3.
Great. Thanks, Mick. One more, if I may. On Ruby, given the write-off this quarter and challenged outlook, can you address the liabilities on that asset? If there needs to be free cash flow directed to it, is that a willingness to do? Just looking at the financial statements look like on a net basis, it's about CAD 39 million of current and CAD 464 million of non-current.
Are you talking about debt at the Ruby level, Matt?
Yeah. Exactly.
Yeah. Well, I think as starters, that's non-recourse debt. Just remind everyone that it's non-recourse debt, we have the flexibility to make some decisions around what to do there. At the end of the day, that asset is challenged. There's no doubt about that when you look at where the spread is. I think it's too early in the process to comment on that other than to say that all parties involved here are going to have to come to the table to come to an agreement, in order to make this a viable asset.
Okay. Thanks, Scott. Thanks for taking my questions.
Your next question comes from the line of Linda Ezergailis with TD Securities. Please proceed with your question.
Thank you. Just to follow up on Jeremy and Matt's questions. You've hit the play button again. Lots of opportunities in front of you. Some might be opportunistic. Lots of change going on beyond ESG considerations evolving, including the recent U.S. presidential elections and some other political and regulatory dynamics. What's the appetite for M&A, and what areas would be the most compelling for you if you had some choice? How do you balance that with respect to some of your other priorities?
I'll start with the macro, Linda, with that question. Biden came in and most people were predicting that. We were on record some time ago talking about Advantage Canada in that scenario, and we believe that to be the case looking forward. Commodity prices surprised us to the good. Delighted about that.
Trans Mountain keeps moving forward. Looks like Line 3 will go. KXL looks like it's indefinitely suspended, I would say. That's still a million barrels a day of new egress, and that oil isn't there today. We've got Shell LNG, with the cold weather both continentally and elsewhere. I think it's reminded people that hydrocarbons will play an important role for a long, long time.
If you zoom into the Shell LNG project, there's lots of talk that the two BCF a day currently under construction might turn into four BCF a day. That's a huge number. A million barrels of oil and two to four BCF a day of gas. Those are huge numbers and those will pull on this basin, and this basin is ready to respond.
It's not going to have some of the same headwinds, looking forward, that it did in the past. We were behind ap portioned pipe, which drove our pricing down. We could not access international gas pricing or international oil pricing and, Brent's always CAD 5 a barrel, roughly give or take, higher than WTI and, we'll be on Tidewater, as a basin.
We think advantage Canada for the foreseeable future. Getting back to your specific questions, if we were going to do anything, we'd be probably looking more Canada side than state side, and we don't have the Permian Basin envy that we had over the last little while. If you look back, and you're a student of this, you'll see that Pembina mainly did its acquisitions when we had a EV to EBITDA range favorable to our peers, and we're not quite in that zone yet. We're getting there.
I would say we're reactive and we're going to focus on brownfield and greenfield opportunities, particularly brownfield, when not only do we have a lot of embedded capacity within our footprint, within our pipes, we have very inexpensive, very accretive debottlenecks too. We can power up Alliance with just pumps. We can power up Cochin with just pumps. We can power up a lot of Peace with just pumps. We've got a lot of very accretive brownfields, and we have lots of synergies to capture from the acquisitions that we've done.
We're early days there, and we're still, like with Kinder, we're really early days in our 50+ 50. We want to hit those numbers. We still have unfinished business with Veresen, and as Jaret said, the drilling there looks pretty good. We have a lot to do. We've got also opportunities to continue to reduce our cost footprint. Our job number one is to improve our return on invested capital, and we're going to do that. We've got a lot of running room there.
Thank you. As a follow-up, you mentioned you've been adding pumping to Cochin. You recently announced an open season for that system. Can you talk a little bit more about what you're aiming to achieve there and how that would balance out any sort of increased domestic production if there is a supply response to the added egress from Shell LNG, and elsewhere?
Thanks, Linda. This is Jason. On Cochin, our first step of capacity evaluation is really around looking at what's there today and seeing if we can optimize it within the existing infrastructure that we have. As we looked under the hood and got to know the asset, we moved all the operations to our control center up in Edmonton, and we were able to find about 15,000 barrels of capacity on that line that we didn't expect in our acquisition model, and we're continuing to look for more.
For our first steps, we're really just looking to optimize the way the system is operated and see how much we can wring out of it from that perspective. In terms of what our vision is there, we think that there's a still strong demand for condensate in the market. Obviously, it's driving the drilling activity in Canada, but there's also the condensate or natural gas lanes that come up from the U.S. that are price-disadvantaged, so they use Cochin to come up into Canada.
We think there's room for both the expanded capacity on Cochin and the incremental growth that we're expecting in Canada. Mick touched on the incremental pipeline capacity that'll come into service between TMX and Line 3, and those things are going to create a bit of a gap in terms of heavy oil production that can be produced and demand for condensate to use as diluent.
Just on your last piece about increased domestic, we believe phase VII, phase VIII, and phase IX are about domestic increased condensate production. We know that product will clear because it has to. When we think about the basin as a whole, our shippers on Cochin are the consumers of the product. We've been saying this for years, it is nothing new. We think that Southern Lights is the swing volume, and it will swing based on what happens on Cochin and what is captured domestically on Peace.
Thank you. Just as a follow-up, you've already put some insights on the NGL dynamics. With the recent cold snap, I believe I recall in the last polar vortex, you were shipping propane to Eastern Canada to help out. With the recent cold snap, if your export terminal were operational, would you be turning back barrels to help North American consumption? How do those exogenous cold snap shocks, would they affect any sort of propane export initiatives you would have in the short term?
When we look at turning on Rupert, we're going to have a wonderful third, a third, a third balance, right? We're going to have exposure to Canadian markets, to US markets, and to, say, Asian markets. If we were on today, we'd probably be a third, a third, a third. I guess the answer is we'll go to the highest market. We have capacity to go to the highest price market.
The good news for our customers is that through our BWAP, our weighted average price basket that they're enrolled in, they're going to participate handsomely in that equation. If FEI is great, we're going to hit the accelerator to FEI. If Sarnia is great, we're going to hit the accelerator to Sarnia. If Edmonton's great, we can leave barrels domestically.
We've been saying to our customers, and they've been patient with us, that the time will come when they get FEI exposure and when we're using, we're amortizing the fixed cost of our storage and rail, which we had been under-amortizing in the last number of years. I think our value proposition to our customers is going to be absolutely incredible here as we get into the second half of the year. Those shipping on Pembina's pipes are going to get a handsome reward, compared to those that are not. Stu?
Linda, it's Stu. Just to give you a bit of an update. We actually did take advantage. We looked through 2020. We actually cautiously watched our supply and our ability to move product. We delayed some sales through Q2, Q3, had the opportunity to participate in better commodity pricing in Q4 and in Q1.
Our system, the logistic ability that we have and the growth that we're creating with the FEI markets, we will continue to have that. We'll meet all of our commitments. We have the flexibility to move the products around with our infrastructure. We will be looking at that on a go-forward basis.
Thank you. I'll jump back in the queue.
Yeah, Linda, one last thing there. Just to recollect, we did turn on our Empress rack, which gives us the ability to swing those barrels anywhere. We can take those barrels south, we can rail them east to Sarnia if we need to, or we can take them west. It's a whole bunch of more flexibility we have, just because we've been doing this long enough to know we don't know when the next hot market will happen and where it will be. Next call, please, operator.
Your next question comes from the line of Rob Hope with Scotiabank. Please proceed with your question.
Morning, everyone. Just want to follow up on a prior question regarding the M&A activity. With CKPC being deferred until the future at some point, there is the potential to add some capacity with the process that's ongoing in the market. Can you maybe talk about your views about being a JV partner in another project, or is it your existing project just on the shelf until markets improve?
We obviously aren't going to talk about an ongoing process. Right now, we're hunkering down, like I said. We're focused on increasing our EBITDA dramatically without spending a lot of capital, investing a lot of capital. Filling up our existing assets, doing those really inexpensive debottlenecks, exporting products to Asia. We've got a lot of running room within the most core part of our business.
If you think about it as concentric circles, getting more out of the assets we have is first debottlenecking assets, like Jason talked about, Cochin or we've got many 100 million a day of capacity up in the Veresen Midstream footprint we need to take advantage of. Petrochemicals is a concentric circle that's out from there, and it remains in strategy, but it's not our highest priority right now.
All right. No, that's very helpful. Just in terms of those other projects that you're highlighting, that you do have brownfield opportunities. Have your discussions with them accelerated over the last couple of weeks, last months, just given the commodity price environment? When you are looking at projects to restart, are you really going to focus on those ones that you highlighted in the M&A first?
I would just say that when we made the statement in my remarks that our confidence in converting probable to confirmed has improved, that's how I would characterize it is, our producer customers, they're getting their mojo back. They just had the hell beaten out of them last year, as did we. They've done their balance sheet repair.
I think they're years ahead of their southern partners for the most part in terms of living within cash flow, having good balance sheets, and they're going to return. I think they're going to cautiously return to drilling within their means. They're not going to rely on capital markets to drill anymore. They're not going to borrow money. They're not going to issue equity. They're going to grow within their footprint.
We've got consolidation happening, and that, in my opinion, is going to turn into volumes, and that's really what's going to power Pembina is we literally have hundreds of millions of dollars of EBITDA opportunity annually within our existing footprint, and that's going to get pretty exciting.
Excellent. Thank you.
Your next question comes from the line of Patrick Kenny with National Bank. Please proceed with your question.
Yeah, good morning, guys. There's been some capital cost pressures across the pipeline industry of late. I know phase VII is still trending on budget. Perhaps you can just comment on how your project is coming out as the outlier in a good way. I guess looking ahead, if you do turn phase VIII and phase IX on later this year, just if you're still comfortable with the initial budgets for those expansions.
Yeah, I guess, recall that we had bought the steel for phase VII pre-pandemic, and so I think we had, what, CAD 300 million was it invested? That represented the steel. That's done, and that worked out well. With TMX or not TMX, with Keystone XL being canceled, we've had a flood of interest in participating in our phase VII project, and so we're pretty optimistic that we can meet or even possibly exceed the number we have out there.
With phase VIII and phase IX, there could be cost pressures. Again, when you can deal with a contractor and say, "Hey, let's do phase VII. You bid hard on phase VII, and then you'll be at the top of list for phase VIII and phase IX," you can really get a great win-win with the contractor. Maybe their unit rates are lower, but they've got a long fairway of working. We're looking at not just cost with eight and nine, but also scope. To date, feeling not bad about it. Jason, anything to add there?
Yeah. Patrick, I would add, because of the time that we've been allowed, the market downturn obviously was not ideal, but it did give us time to evaluate our assets. Having that extra year, we're able to really pinpoint where the capacity constraints are. When we talk about what we historically referred to as phase X, we're now able to actually test out our assets that we've put into service over the last number of years and figure out what they're truly capable of.
Up until last year, we were just trying to stay ahead of the production growth, and we weren't really able to plan as well as we would like to. We were just maximizing the amount of capacity we could add. We're now able to actually look at specifically what areas need debottlenecking, what's the optimal pipe size, pump size, how many pumps do we need, all of those things. We can actually stage it out in more stages now as we're looking. We see a much more smaller stage series of expansions that we can do that are easier to execute and easier to plan.
Just to round that out, I think it goes without saying, but I'll say it anyway. Our ability to compete as scope and cost are managed, it's just getting stronger and stronger. I think unlike other news out there, you're going to hear our costs are going to go down, not up. Jaret?
Hey, Pat. It's Jaret here. I just wanted to also add that you're fairly familiar with our map. phase VII is essentially La Glace, kind of going what we refer to over the top, down into the Fox Creek area. Just the geographical footprint there, it's good terrain, right? You're not into the foothills. If you think of going from Fox Creek, going straight west, in through picking up, say, Seven Gen's acreage and building out to where our Musreau complex is, Resthaven complex, and moving up into north into GP, Grande Prairie.
That's the really tough terrain, right? Those chunks of our assets, they're in the ground, they're built. phase VII, it's farmland for the most part. phase IX, you're up in that Dawson Creek, beautiful plains into Northeast B.C. Once again, very good. You do have some river crossings, but essentially, the tough flatten and building, it's in the ground. We don't have to go there anymore. Just keep that in mind as well.
Okay, that's great color. Thanks. Maybe just to go back to your comments around ESG, and I know you're working towards establishing your carbon reduction targets by the end of the year, but just given we've seen a rapid increase in the number of large reputable companies pledging net zero by 2050, even without a crystal clear path to get there, but call it more of an ESG compass, if you will. Just wondering, what's holding Pembina back from including net zero as part of your broader capital allocation guardrails?
What's holding us back is we don't announce things like that until we know how we're going to do it. When we announce it, we'll know how to do it. You're going to see us taking concrete steps, and over the next number of years, I'm going to make maybe a bit of a bold prediction that when you extrapolate the sum total three years from now into the future, you'll conclude for yourself where we're going to get to.
We're going to put some targets out there. We'll meet those targets. We're going to put some evidence out there this year that we're serious about that. I don't know when we'll be able to predict carbon neutral, but when we do, we will know how to do it.
That's great. Thank you very much.
Your next question comes from the line of Robert Catellier with CIBC Capital Markets. Please proceed with your question.
Hey, good morning, folks, and congratulations for managing through 2020. I know that wasn't easy. My question this morning is on ethane. I just wanted an update on where you stand with that, specifically if you think the current incentives and government support that's out there is enough to sponsor a cracker. Otherwise, what do you think needs to happen for the industry to be in a position to see a new cracker become a reality? In your answer, maybe you can address the impact of CAD 170 per ton carbon tax might mean to the outlook there.
Yeah. Let's just start with the second question. I think anybody who comes in the province is going to have their carbon situation figured out, as part of their base project. These are multi-billion dollar projects. Add another CAD 200 million-CAD 300 million to sequester your carbon or do what you need to do. That's a rounding error.
I don't think that's a huge impediment for that. In terms of how we participate in that, we move most of the ethane in the province. I can't imagine we're not going to be in the middle of that discussion. We'll work very hard to facilitate it. Ethane's a huge part of our value chain. Some of our largest customers are our ethane customers. It goes right back to the gas plant, through pipes, through fracs, through storage. It's a 50-year demand.
We couldn't be more serious about that, and we'll do everything we can to facilitate it. I think the government understands it, too. That's the kind of value added that Pembina and the province needs. Those are jobs that are going to last decades and decades, and property tax base and so on and so forth. They, in turn, can spawn value-added industries. I think it's a logical place where we have sustained cost advantage as a province and we think it's going to happen. The province wants it to happen. Stu, do you have any thoughts to add there?
Yeah, no. The only thing I'll add, Robert, is we've been looking at this. We think there are opportunities, there's definitely opportunities to increase the ethane supply competitively in Alberta to support the backstopping of a cracker. It's going to take producer effort, midstream effort, and government effort. I think we're seeing alignment of those things, and so we're excited about the role that we play today, and we think we can play a larger role in the future with the opportunities that are in front of us. Jaret, do you have any comments?
No, you guys said it well.
Okay. Thanks for that. My last question has to do with the volumes at Younger. There's a lot of competing influences there. Obviously, a turnaround, but also the drilling. There's also some new services on the NGTL System in town. Can you help us, and sort of attribute which of those factors has had the biggest impact on volumes? In other words, how much could be considered short-term and how much is more of a long-term impact on volume?
Rob, Jaret here. Yeah, great question. In Q4, we did have a planned outage, so that impacted the Younger volumes. You nailed it on the head, the supply coming in into that area was altered with the startup of some competing gas assets. I would say that, not divulging the exact numbers, but I would say that our marketing business team, in conjunction with the gas processing team, has done an unbelievable job getting back out, boots on the ground, and increasing the supply into that asset. We did have a little bit of a hiccup there, and then, with the planned outage, Q4 looked a little bit lower than normal, but the demand is picking up.
Okay. That's great. Thank you, guys.
Your next question comes from the line of Andrew Kuske with Credit Suisse. Please proceed with your question.
Thanks. Good morning. In terms of risk management, I guess you've always been very good on knowing what you don't know, and the partnership you have with KKR is really representative of that. Maybe more broadly, how do you think about partnership or JV potential, just in the context of growing your business?
That's such an interesting question. We don't like to partner. Let me just say that. Most people know it. We like to control our own destiny, the reason we like to do that is because most of the projects we do that extend the value chain, whether they're in our current suite of services or extend our current suite of services, they enhance the value of all of our assets.
When you don't control the next step of your value chain, then you lose control of taking the step beyond that. When we look at partners, we want to ensure that we're taking them to de-risk what we're doing, but also so that we don't impair our ability to keep growing along the value chain. For example, if we had no rail facilities, if someone controlled our rail facilities, we probably wouldn't have been able to do Prince Rupert. Because we would have an unknown in terms of cost and reliability between our Redwater frac and our Prince Rupert terminal.
Because we owned the pipes, then we were able to get into fractionation. Because we got into fractionation, we were able to control storage and rail, and then we could push those molecules to Rupert, and really because we wanted to. We can't imagine having a JV that prohibits us from taking the next step in the value chain. We like to have partners that we need to fill a gap, a knowledge gap, a capability gap, even a financial gap. They can't impair our ability to control our walk down the value chain path.
Okay. That's very helpful. Maybe just more narrowly on risk management. If you think about the efforts you've had, specifically at Redwater with the cogen. Clearly we've seen a pretty volatile power market as the PPAs rolled off, and we're in a more free market environment. Could you talk maybe a little bit about power cost management and how that's really benefited you and the outlook in the future?
Just on cogens, I wouldn't be shocked if we announced one a year for a number of years. They're taking us off a coal gas mixture to an all gas mixture. We don't have line losses through transmission. That's obviously energy going into the environment we don't need and very cost competitive. We anticipate continuing to do that. We hedge power. Your question's risk management.
We hedge a lot of our power, for example, at Empress because we hedge our gas, we hedge our power because those are the input costs of making propane and butane. We're doing that now. I would say, though, our focus is our self-supply power requirements. It's not merchant. We might end up with a few kilowatts of merchant just based on cogen sizing.
I'm not going to rule that out, but our focus is self-supply, and that's a big market. We're one of the biggest power consumers in Alberta, and so that's a big market. We have economies of scale. Consistent with my comments on cost efficiency, we're consolidating all our power needs across our business to a single desk.
We'll have our cogens in there, and we're looking at renewable sources of power as well, not necessarily to invest in, but to consume. That's a big opportunity for us from a cost perspective and efficiency perspective. Again, we do hedge a lot of that, and a lot of what we do is hedging our self-supply. Jaret?
Great.
Andrew, I'll also add this on the mitigation side, not only the commodity itself or the energy that you're consuming, but as you build these cogens, you obviously have to back that up with reducing your reliance on the wires charges for the distribution. Right? As we build out this strategy, taking ourselves off, because there is obviously potential that the energy itself increases in price. There's also the risk that the transportation distribution of that energy goes up, and we'll continue to wind those portions of that exposure down as we build those centralized power generation units.
That's great. Thank you.
Your next question comes from the line of Robert Kwan with RBC Capital Markets. Please proceed with your question.
Perfect. Good morning. If I could just start with some questions on the big gas pipes and starting with Ruby. You took the full write-off of the convertible preferred and recognizing there may be some interplay with that and probabilities around impairment math. What is that saying if you're taking the full write-off against your expectation for future cash flow?
I think, Rob, obviously the impairment is a bit of an accounting exercise. There's lots to do on that pipeline. There are opportunities in the future. I think the main driver of the impairment is the short-term outlook on that asset base is very challenged, with both the Station 2 pricing as well as the Opal to Malin spread.
There's just not enough sense in the spread to make that pipeline toll. We do believe there's potential to recontract that pipeline, albeit at much lower tolls, and longer term, we're looking at some opportunities around that pipeline. That being said, there's a bunch of things that have to happen, including the note refinancing next year. There are some things that are possible. Can you put that in an impairment model? No.
Based on what we know today, that asset is very challenged, but we're working hard on that, and as I said previously, it's a bit of a complicated structure with ourselves at our preferred distribution. We have Kinder Morgan below us at the common, and then we have the bondholders. As I said previously, everybody's going to have to come to the table, and work together to make this a sustainable pipeline. In terms of the short-term outlook, we had already forecasted a lower contribution from Ruby in 2021, and that was implied in our 2021 guidance.
Okay. The fact that you wrote it to zero, your expectation is there still is some positive cash flow here in the future, and depending on how the parties come together, it could still be a fairly material number into the medium term. Is that fair?
Yeah. There's still contracts, obviously, on that pipeline. One of the contracts goes out to 2026. There's also some interruptible volumes as well as the producer contracts are good for another six months. There is cash flow on that asset. Where it ends up will be determined over the next several months here as we work with all the parties involved.
Robert, we think this thing's going to generate cash flow in the future. We can't point to it now. The foundational contracts were rich, and they were struck in a different time. We think there's going to be replacement there. For impairment tests, you can't put what you think is going to happen in there.
You have to put in what you know is going to happen with certainty. I guess to some extent, the accountants made us do it. It's not necessarily reflecting what we think the long-term cash flow generation prospects of that line will be. We do think it will have an ongoing source of cash flow.
Do you think we'll get clarity on how this all plays out in 2021?
I don't know.
I'll turn that to Let's let Cam answer that.
Yeah. I think that it's early on in the process, Robert. As Scott says, all parties need to come together. I think we're certainly hopeful that that's the case, and we can have a constructive outcome.
Just turning to Alliance, just some thoughts as to how you see that playing out over the next coming years. Do you see any potential to get the regulator more involved, either from rate setting or even just some of the mechanics around tolls, for example? I think the regulatory treatment right now is you're a price taker on the bid floor, but there is precedent from the CER for you to be a price setter to essentially incent contracting. Is that something you're looking at?
We haven't had that conversation yet. Obviously, that's a really volatile spread, to say the least. I think, the value of that pipe, just at a macro level, Robert, was demonstrated, and it was a pretty important source of energy for the U.S. here recently. It was one of the pipes that kept producing. In fact, I think we saw 200 million, 300 million a day more hit that pipe here through the cold snap.
You're going to have, I think, producers looking at that, and you're also going to have consumers looking at that, like, "When the chips are down, where was the energy?" We think that pipe will have a better differential than it currently does now. We've seen this before. In my career, I've seen the spreads tighten up and then go to CAD 2, above CAD 2.
We're pretty sure it'll get recontracted. Maybe Pembina and Enbridge have to market the space a little bit in the near term. In terms of the rate setting, it's a very good idea, and it's a takeaway for us to see what the opportunities are. Maybe I can catch up with you offline on what your brainstorm is there.
That sounds great. I'll leave it there. Thank you.
There are no further questions in queue at this time. I turn the call back to Mr. Dilger for closing remarks.
Well, thank you everybody. I am sure you're looking forward to 2021 as much as we are. Things are starting to break, it looks like, on the COVID front. Still some challenges ahead. Probably having talked to our U.S. directors yesterday, they're ahead, and things will clear faster than Canada. We see great energy prices. We're encouraged. We're not ready to say they're going to continue indefinitely, but it's a very good start.
We're seeing volumes come up, and so as we close the book on 2020, I want to say thank you to all our people on the phone, our shareholders who stuck with us through 2020, and our staff who were amazingly resilient and allowed us to meet our safety, financial, and community objectives, and our customers for working hard with us to keep paying the bills. Thank you very much, and have a great weekend.
This concludes today's conference call. Thank you for your participation. You may now disconnect.