Good day, everyone, and welcome to the Pembina Pipeline Corporation Market Update. Today's conference is being recorded. At this time, I'd like to turn the conference over to Cameron Goldade. Please go ahead, sir.
Thank you, Sarah. Good morning, everyone, and welcome to Pembina's conference call and webcast to provide a general business update, including progress on environmental, social, and governance priorities, and to outline the company's 2022 outlook. I'm Cameron Goldade, Pembina's Interim Chief Financial Officer. On the call with me today are Randy Findlay, Chair of Pembina's Board of Directors, Scott Burrows, Interim President and Chief Executive Officer, Janet Loduca, Senior Vice President, External Affairs and Chief Legal and Sustainability Officer, Jaret Sprott, Senior Vice President and Chief Operating Officer, Facilities, Harry Andersen, Senior Vice President and Chief Operating Officer, Pipelines, and Stuart Taylor, Senior Vice President, Marketing and New Ventures and Corporate Development Officer. This call is being webcast and will be available for replay on our website. The presentation used today will also be available for download on our website shortly after the call.
This morning, you'll have the opportunity to hear from the entire Executive team, as well as a message from our Board Chair. We'll start off with some opening remarks, followed by an overview of our ESG framework and initiatives, and finally a discussion of our 2022 outlook with an update on our project portfolio. At that point, we will open the line for questions. Before we start, 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, projections, and risks. Further, some of the information provided refers to non-GAAP financial measures. To learn more about these forward-looking statements and non-GAAP measures, please see the presentation slides as well as Pembina's financial reports, which are available at www.pembina.com on SEDAR+.
Actual results could differ materially from the forward-looking statements we may express or imply today. Now, with that out of the way, it's time to get started. We will begin this morning by turning the call over to Randy Findlay, Pembina's Board Chair.
Thank you, Cam. Good morning, everyone. I'm pleased to be here today on behalf of the Pembina board to discuss the leadership transition we announced several weeks ago. Firstly, I wanna take the opportunity to thank Mick Dilger for his service and contribution to Pembina. During Mick's tenure as CEO, Pembina accelerated its impressive 65-year history of innovation and growth. It became a truly differentiated, integrated leader in the midstream space with a strong core business. As a result, I believe we are very well-positioned for the future. I want to emphasize that I'm truly proud to have worked with Mick. As many of you know, the leadership of a large corporation has a life cycle. In this case, it was simply the right time for a change and for the board to implement a process for succession.
We are fortunate to have Scott leading Pembina as our Interim President and CEO. Scott knows this company and our industry deeply, with 11 years of experience at Pembina and nearly 18 years in energy. His roles in Corporate Development and as CFO, Scott has been a key architect of the company's growth and financial discipline. He has overseen over CAD 20 billion in successful strategic acquisitions and growth investments that have reshaped our company over the last decade. In short Scott, along with the rest of Pembina's senior Executive Team, has been instrumental in defining and executing on the strategy which has delivered what Pembina is today. The strong track record will be essential to continuing our momentum during this transition and for the long term.
Furthermore, the core senior leadership team has been intact for many years now, and the board recognizes the tremendous bench strength within that leadership team and the invaluable support they will provide to Scott. As was previously announced, the board is undertaking a process to identify and evaluate external candidates, internal and external candidates for permanent CEO to lead Pembina in its next chapter. Clearly, we have a great deal of confidence in Scott's capabilities, and he is obviously a strong candidate. Selecting a CEO is one of the most important tasks a board can undertake, and we intend to do so thoughtfully, recognizing the strong capabilities and future opportunities inherent in Pembina today. The board is likewise committed to an efficient conclusion of this process.
In the meantime, Scott and the rest of the leadership team have the board's full support in continuing to advance Pembina's strategy, driving new initiatives forward, and seizing opportunities to enhance value as they present themselves. In closing, let me say definitively that the board continues to have a strong conviction around Pembina's strategy for the long term. The core tenets of the strategy that has underpinned our success remains intact. We look forward to continuing to build upon our core business and support the company's long-term growth while being a leading participant in the energy industry's evolution to a more sustainable future. We are excited about the challenges and opportunities that lie ahead for Pembina and our industry.
Thanks, Randy, and good morning, everyone. Thank you for joining us today. I'm very excited to be addressing you as there are a number of tailwinds and developments to share. Some of the key points from today's presentation are noted here. First, as Randy mentioned, the strategy that has been instrumental in Pembina's success and helped generate industry-leading returns remains intact and will continue under the direction of a management team that has a long history at Pembina. You'll also hear more about how ESG is an important part of our strategy and something we are embracing as a source of advantage. Second, we'll provide our views on the extensive tailwinds and demand drivers we see forming across our business and for each of the commodities within Pembina's value chain.
Further, as we noted in our press release this morning, there have been positive developments around two Northeast BC producer agreements and Alliance recontracting. Third, we will provide some color around 2022 guidance and capital budget we released yesterday, including our plans for capital allocation next year. Finally, we'll touch on our project portfolio, including the significant reduction in the expected cost of our phase VII expansion and our focus and achievements as it relates to ROIC and operational efficiencies. All of this is possible due to our strong financial discipline, highlighted by our strengthening guardrails. That's the plan for today. In a moment, I'll turn the call over to my colleagues to get into the details. Before doing that, however, I'd like to ground the discussion in the fundamental building blocks of the company. For those of you that have followed Pembina for some time, the next few slides will look very familiar to you, which is very intentional.
With Pembina, it starts with the purpose, which is integral, in fact, anchoring our philosophy and forms the basis of how we work each and every day. We strive to be the leader in delivering integrated infrastructure solutions and connecting global markets. In doing so, we've also committed ourselves to being in business for all stakeholders, not just one. That's our purpose. When companies run into trouble, it's usually because they fail to take care of one of these groups. We balance the interest of all of our stakeholders, employees, customers, communities, and investors. We have a long history of ensuring each group benefits from our business activities. Further, we will outline in more detail shortly how our purpose is very aligned with how we think about ESG.
Everything we will talk about today and all the Pembina plans to do in the future is linked to our purpose in one or more of these stakeholder groups. After our purpose, it makes sense to speak to the diversified and highly integrated asset base that makes up our business. It all started with the underlying geology, and as you can see, our assets are on top of some of the best geology in the world. Over Pembina's first 45 years, we established our roots primarily as a pipeline company, building out a conventional system that started with the Drayton Valley pipeline, getting crude oil from producing wells to market. Later, we built out the oil sands business. The real game changer for Pembina was the shale revolution, which created significant reserve lives, and then that happened and our infrastructure was in the right place.
In the early 2000s, our focus on vertical integration really began. At the time, we had lots of spare capacity in our pipeline, so the question was, how do we fill the spare capacity? Through the initial purchase of Cutbank, a 300 million a day gas plant, we entered the gas processing business, which was a good business in its own right, but also allowed us to increase the liquids recovery in the field and then increase utilization on our pipeline. We went on to expand Cutbank and add Saturn and Rostad. More recently, we are building out our Duvernay Complex, and a few years ago, we acquired Veresen Midstream assets, which gave us gas processing in the Montney.
These liquids gathering and gas processing businesses, plus the Cochin pipeline, which brings condensate up from the U.S., as well as significant crude oil storage assets, both of which we acquired in 2019. Those really are the first leg of the stool. With the entry into the gas processing and all those liquids now in our pipelines, we began building the second leg of the stool in 2012 when we entered the NGL business with the acquisition of Provident, which added world-class fractionation, plus the Younger and Empress extraction plants. We went on to grow those businesses too with the addition of a second and third fractionator at Redwater. Along the way, we added the Vantage and AEGS assets to make up a large part of our ethane gathering system.
Finally, the third leg of the stool came in 2017 with our diversification into natural gas transportation with the Alliance Pipeline, which extends all the way down to the Chicago area. No matter what comes out of the ground, gas, C2+, C3+, crude condensate, we can provide services for it. We have about 3 million barrels per day of transportation and 6 Bcf/d of gas processing. We have the largest fractionation complex in Canada, plus a significant portfolio of storage and rail assets. We built a tremendous marketing business around it all, which gives us great market insights and allows us to offer the full spectrum of services to our customers.
What's really exciting is that we are starting to add icons on this map on the West Coast of Canada, as you can see with our Prince Rupert Terminal and our proposed Cedar LNG facility, as we advance our global market access strategy in getting our customers the best price for their products. That's 65 years of history in about 65 seconds. This slide tells a similar story, but from a perspective of how we developed our customer service offering across multiple hydrocarbon value chains. It starts on the left with production and ends on the right with consumption. For decades, we've been filling in the pieces in between those, and today we are ideally situated with what we call the Pembina Store to provide all the services that customers need. This integrated service offering or one-stop-shop is a major contributor to our success.
No matter what products they have or where they have it, a customer is one phone call away from an integrated service offering. You can call us, and we can provide a market for your product. As we step down the value chain, it's going to be towards higher and higher value markets. When people ask, "What will Pembina do next?" The answer is often the same. We will continue to enhance the Pembina Store. We have a slide near the end which articulates our vision of what the Store might look like in the future. I talked at the start about Pembina's purpose and the need to balance all four stakeholders, customers, communities, employees, and investors in order to achieve our purpose. That approach is ingrained in how we do business.
Our ESG focus supports all of our stakeholders, which makes it really easy to incorporate into our strategy. Our customers are increasingly asking Pembina to help them achieve their ESG commitments, and we've got the expertise and tools to help them do that. Our communities expect us to mitigate the impact of our operations and to share the economic benefits we bring. Our employees want to feel comfortable showing up to work every day as their authentic selves, and we want to see themselves represented in all levels of the organization. Our investors want to know that we're embracing the transition to a cleaner economy while we're still providing competitive returns. Pembina has a long history of embracing ESG. It is not new for us. We've been doing it long before it was called ESG.
Over our 65-year history, we have a strong track record of safe and reliable operations, protecting the environment, supporting our communities, both economically and environmentally, working with Indigenous communities to create mutually beneficial relationships. More recently, we focused on enhancing our disclosures, taking the foundational steps to announce our GHG emissions reduction target, and creating a more diverse and inclusive work environment. Going forward, we are really well-positioned to deliver on our GHG and diversity targets and to continue to embed ESG in all aspects of our business, from how we operate to how we recruit and retain employees, how we select our suppliers, and how we finance the business. It's just part of our DNA. I am very proud of the strides we have taken and inspired by what is possible.
I will make some closing remarks at the end of the presentation and look forward to the question- and-a nswer period following our prepared remarks. Until then, I will pass it over to the rest of the team, starting with Janet.
Thanks, Scott, and good morning, everyone. 2021, Pembina took a number of really important foundational steps to enhance our disclosures as well as set us up to successfully achieve a significant reduction in GHG emissions intensity. Started off by engaging a third party to perform a materiality assessment to really understand from our stakeholders' perspective what they view as the most material ESG issues for Pembina. We also reported to the Carbon Disclosure Project for the first time. We had our Scope 1 and Scope 2 emissions third-party validated. That gave us confidence in the foundation and allowed us to announce our 30 by 30 GHG emission reduction target. We also announced the Alberta Carbon Grid, a vision with TC Energy to decarbonize emissions across Alberta. We entered into a renewable power purchase agreement that will offset nearly 5% of our total emissions.
Going forward, we've got a solid plan to reduce our emissions intensity, and we're gonna talk more about that in a minute. We're gonna continue to enhance our disclosures. In 2022, we'll be conducting a climate scenario analysis that'll allow us to further incorporate ESG into our longer-term strategy and align our reporting with the task force for climate-related disclosure. We're also getting our waste and water data third-party validated. One of the things that we're really proud of here at Pembina is that when we set a target or we make a commitment, we meet it. As we began to think about GHG target setting earlier this year, we wanted to make sure we had a solid plan to meet that target. We brought together a multidisciplinary team of employees from operations, environmental, new ventures, and other teams to identify opportunities to reduce emissions.
That broke down into three buckets, Operational Enhancements, Renewable Energy, Investing in a Lower Carbon Economy. That applies to both Pembina and broader industry assets. For example, we're looking at potential pilot projects to capture and store carbon generated by Pembina assets, but we've also got the Alberta Carbon Grid, which is looking to help the industry and broader across Alberta reduce its carbon emissions. On the next slide, Jaret's gonna talk some more about these opportunities in a little more detail.
Thank you, Janet. Good morning, everyone. On the left-hand side of this slide shows our emissions profile. On the top left icon, you can see that 60% of our emissions are Scope 1 or direct emissions. The remaining 40% are Scope 2 or indirect emissions from purchased energy. Approximately 80% of our total Scope 1 and Scope 2 emissions are generated within the Facilities division, and the remaining 20% generated through our Pipelines, primarily, Scope 2 emissions. Of our Scope 1 emissions, approximately 75% are generated through combustion of natural gas and approximately 20% through flaring and venting. For our Scope 1, we're focused on reducing combustion and flaring at our assets. Not only does this lower our GHG intensity, it also increases our customers' netback . For Scope 2, we're focused on using less carbon-intensive energy mix.
Over on the right-hand side of this slide, this shows our opportunities broken down into three primary areas: improving our fuel efficiency, reducing flaring and waste gas, greening our energy mix through incremental renewables and cogeneration facilities. As you can see on the diagram, we have many opportunities. Actively, we are executing our second 45-MW cogeneration facility at our Empress asset. As Janet previously mentioned, in 2021, we executed a 100-MW wind power agreement, and we have an RFP out for a second renewable opportunity. We are also investigating opportunities such as solar behind some of our larger power demand sites behind the meter.
On some of our gas processing assets, we're focused on reciprocating compressor optimization at our Resthaven asset, and also a large VFD or Variable Frequency Drive installation at our Younger extraction facility, just to identify a couple. With that said, I'll hand it back over to Janet. Thank you.
Great. Thanks, Jaret. We're gonna turn to the S part of ESG, and that's an area that Pembina has historically been very strong in. Scott mentioned at the outset, you know, safe and reliable operations, strong community support, and Indigenous engagement, and we've been recognized externally for that. This year, we received Canada's Top 100 Employers Award, and also Alberta's Disability Employment Awareness Month Award, which recognizes companies for their approach to employing and accommodating people with disabilities. More recently, we're focused on increasing diversity at all levels, from the board to executives to the field. Our board is currently at 40% women, and we've committed to maintaining at least 30% gender diversity and increasing our overall diversity, which includes women, Indigenous, disabled, and visible minorities to 40%.
At the executive level, we're seeing an increase in diversity. I joined our senior team earlier this year, and we've got line of sight to further increase diversity at the executive level next year. The field is an area where we're really excited, and we think we've got a lot of opportunity. We've been partnering with an organization called Women Building Futures. It's a non-profit that partners with industry to build careers for women in trade. So we've got a couple of projects that we're working with them on. We're funding a two-year engineering educational program that includes summer placements at some of our field-based operations. It's a real opportunity for us to build the pipeline of qualified women in this area.
We're also providing opportunities for women who are currently unemployed to work with Pembina and its contractors on projects such as the phase VII Peace Pipeline Expansion. It's not enough to bring women and other diverse employees into our organization. We need to retain them as well. One of the things I'm particularly excited about this year is we've been focused on creating a more inclusive culture where everyone feels comfortable bringing their authentic selves to work. This year, we launched something that we're calling the Conversations for Change series. It's where real employees from various diverse backgrounds come together on a panel and share what it's like to live in their shoes.
We've had two panels featuring intersectional women, so a Black woman, a gay woman, an Asian woman, a Muslim woman, a Jewish woman, all sharing what it's been like throughout their personal and professional careers. We had two Indigenous panels. We've had a panel on disabilities, a mental health panel, a panel with LGBTQ2S+ employees and allies, and most recently, we had a panel on male gender norms. These panels have been incredibly well-received by employees. We've had hundreds of employees listen in live and hundreds more listen to the recordings afterwards. There's been an outpouring of support for our panelists, people reaching out and applauding their courage and vulnerability and thanking them for sharing their stories. It's all about creating a safe space to talk about the challenges that our diverse employees face and what support they need from us to succeed and thrive.
Going forward, this morning, we announced our EDI targets, which Scott's gonna talk about more on the next slide. We're focused on pay equity, and we're increasing our EDI training for both employees and contractors, including indigenous awareness training across the organization in 2022.
As Janet mentioned, we've recently adopted EDI targets for our employees. We had originally proposed the targets to our board in August, and were hoping to publish earlier. At the same time, we were also planning to re-survey our employees to ensure we had an accurate baseline. This turned out to be a good decision as we saw a greater than 5% increase in diversity as a result of the survey. I give a lot of credit to our Conversations for Change series. I believe people are more comfortable identifying as diverse as a result of the panel discussions. As a side note, I would like to personally acknowledge the courage and thank those employees who volunteered as panelists.
As it relates to our targets, we have rolled out targets that you see on the slide on the bottom right-hand side, focused on two categories, women and overall diversity. As Janet mentioned, that includes Indigenous, disabled, and visible minorities. We set targets for overall employee population as well as the executive team. For women, we have set a target of 35% for the overall workforce from a current baseline of 27% by 2025, and the executive team from 26% to 30% by 2022. As it relates to overall diversity, we have set a target of 45% from a baseline of 39% by 2025, and the executive team from 30% to 40% by 2025.
Similar to our GHG emissions reduction target, we have solid plans behind these goals, focusing on how we attract and retain women and other diverse employees.
I'm gonna pick up on the Indigenous inclusion. This has been an area that I think has been a really positive differentiator for Pembina for quite a while. It's very aligned with our purpose. In 2021, we announced the equity partnerships with the Haisla Nation on the Cedar LNG project and with the Western Indigenous Pipeline Group on the potential purchase of TMX. Those relationships and those partnerships have literally been years in the making. They don't happen overnight. They represent a really exciting opportunity to redefine how indigenous communities and industry can work together to support economic reconciliation. Going forward, we're gonna expand on our success by developing an enhanced indigenous engagement strategy, increasing our indigenous spend in our supply chain, and improving economic development opportunities.
Governance is another area where Pembina has historically had very strong results, and we've consistently received the highest rating from ISS. We're not gonna rest on our laurels here. More recently, we've been focusing, as we said, on enhancing our disclosure, adding new metrics to our sustainability report, participating in the Carbon Disclosure Project, and getting our emissions third-party validated. We're also focusing on embedding ESG into all of our policies and practices. For example, linking ESG to our incentive compensation and adding energy transition to our enterprise risk register. Going forward, we're gonna continue to enhance our reporting to further align with frameworks such as the Task Force on Climate-related Financial Disclosures. We're gonna embed emissions into our investment criteria, and we're working on our first sustainability-linked loan in the first quarter of 2022.
This year, as a result of all of our enhanced disclosure, we've improved or maintained our ESG scores across the global rating agencies. For ISS, we've maintained our top score of one for governance, and we're now ranked as low risk overall as a result of our progress on the environment and social scores. For Sustainalytics, we again saw improved scores and now are an industry top ranking. To close out, our ESG strategy is aligned with our purpose and in service of all of our stakeholders, customers, communities, employees, and investors. We're embracing the opportunity to support the energy transition. We're laser focused on diversity and inclusion by creating a workplace where all employees can thrive. We're setting the standard for what true Indigenous industry partnerships can look like, and we're embedding ESG into our systems and processes, so it's just the way we do business.
With that, I'll turn it back over to Scott or Cam or Harry.
Hey, thanks, Janet. Great job on that. I know all our company is really proud of where we are on the ESG front and where we're going. I'm gonna take a couple minutes to talk about industry conditions and a business update together with my partner, Jarrett Sprott, on this. Starting with sector fundamentals, they're really instructive. We're gonna walk through five pillars on the sector fundamentals that are really pointing to significant positive optimism in the industry. The first three we're gonna talk about are Volumes, Pricing, and Inventory. From a Volume perspective on the WCSB, as you can see, we're sitting above pre-pandemic volumes across the commodity complex being crude oil, natural gas, and NGL.
On the NGL commodity complex front, this is despite the impact of several planned and unplanned outages we've been dealing with here over the fall in the WCSB. From a Pricing perspective, and we're all seeing the short-term volatility in crude oil, natural gas, and NGL, but when you step back, prices across all three of these commodities are above pre-pandemic levels. From an Inventory perspective, you can see that we are below industry average, particularly around propane and crude oil. The other two pillars we're gonna talk about are Drilling and then how our Customers are looking. From a Drilling perspective, you can see there's been a very good uptick in the WCSB rig activity, particularly since summer, where we popped above pre-pandemic levels. On the customer side, there's three things that are really instructive here.
First, Customers have significant free cash flow. We're talking about in excess of over $100 billion of free cash flow over the next three years. From a leverage or a balance sheet perspective, our customers have done an extraordinary job of paying down debt. Third, our Customers become incredibly efficient, driving all costs, all sorts of costs out of their business, become very lean and very, very efficient. When you add these five up, and you look across the five pillars of sector fundamentals, we're talking about the Volume, Price, Inventory, Drilling activity, and then our producer's overall balance sheet. They individually and collectively point to significant optimism for the sector, for Pembina and for our stakeholders.
Again, I'd like to emphasize that this is in the face of not a full economic recovery as we're still dealing with the impacts of COVID-19 and the pandemic. All right. We're gonna transition to talking about one of the significant growth drivers in the WCSB, being Northeast BC and the Montney. The first thing we're gonna touch on here is just to elaborate on our existing footprint that provides Pembina a very significant competitive advantage. We've put here our Northeast BC pipeline system, which we can easily triple capacity because of the embedded advantage we have from our existing facilities. But that's not the full story. On the pipeline side, there's the balance of the Peace franchise, and then our Canadian diluent hub on the condensate side.
You add in our VMLP gas processing footprint, our fractionation complex at RFS, and then our robust NGL marketing business, and then combine that with our Alliance and then ultimately the Aux Sable footprint down in Chicago. We have a very strong presence in Northeast BC. From an industry trends in, we've seen a really significant producer consolidation with better balance sheets. Producers who are able to move capital around and quickly deploy when opportunities and prices present themselves. Producers are also very interested in the entire Pembina value chain or the Pembina Store. From a Pembina bespoke perspective, we already talked about the initial commercial arrangement. We've reached one Montney producer. We're also fortunate enough to execute a second agreement with another Montney producer for liquid transportation service for volumes out of the Northeast BC, Montney as well.
I'm gonna end off talking about our very strong Alliance and Aux Sable value chain. What we're seeing is our Alliance Pipeline and Aux Sable value chain have returned to enjoying its embedded structural advantages. That's effectively being reliable access to Midwest natural gas and NGL markets and increasingly a robust LNG and LPG export markets. It's important to note when we talk about Alliance and Aux Sable, we're really talking about two pipelines in one. There's a 1.6 Bcf/d of natural gas transportation service, but we also have about 85,000 barrels per day of NGLs that flow through Alliance, the world-class Aux Sable facility. In terms of Alliance itself, we just recently had a bunch of very good open season success.
For the 2021-2022 gas year, Alliance is fully contracted and that included a three times oversubscribed open season. From a 2022-2023 moving forward contracting basis, Alliance is now 76% contracted on a long-term basis. We also anticipate subsequent positive open seasons on longer term capacity, and we're in the middle of one of those longer-term open seasons offerings right now. With that said, I'm gonna turn it over to my partner, Jaret Sprott, to talk about some of the demand drivers we see across this commodity complex.
Thanks, Harry. In addition to the significant growth we've seen in drilling within the Deep Basin, Duvernay, and Alberta Montney, we've also, Northeast BC has been and continues to be a driver of growth in the basin for Pembina and something we're really excited about, as Harry showed. The longer-term liquids growth that he talked about will be driven substantially by natural gas demand as the LNG industry on the West Coast of Canada begins to take off. Obviously, Alberta will continue to demand condensate for the oil sands. Between LNG Canada and our Cedar LNG project, we could see more than 2 Bcf/ d of LNG being exported, and that could grow to greater than 4 Bcf/d with the expansion of LNG Canada.
Adding to this is the conversion from coal to gas and generation of electricity in Alberta, as well as growing demand for exports of gas to the United States. What does all this mean for Pembina? Ultimately, more gas equals more gas processing in areas where Pembina has a presence, and that also includes our Veresen Midstream partnership with KKR. Increased gas processing ultimately leads to more NGL volumes, which requires transportation, fractionation, storage and rail, along with marketing services, which Pembina is well situated to service on our customers' behalf. Next, I'd like to talk about the ethane molecule. On the ethane side, we're seeing a resurgence of the petrochemical industry in Alberta as the provincial government looks to diversify its economy by incentivizing petrochemical development.
In addition to the existing ethylene cracker capacity, Dow Chemical has an expansion opportunity which will drive significant increase in ethane demand in the province of Alberta. Once again, this is a space where Pembina has a strong presence and will be well-positioned to benefit through increased utilization of existing C2+ pipelines, incremental NGL extraction, additional fractionation at Redwater, and the potential to expand our AEGS pipeline. We also have a growing ability to support Dow Chemical and other industrial customers in the Heartland area in achieving their GHG reduction goals. Next, I'd like to talk about the propane molecule. This is another area where Pembina has a leading position. Propane demand continues to rise with the development and expansion of West Coast export facilities, the addition of new third-party propane complex, and incremental demand pull from the United States.
Opportunities for Pembina include expanding our Redwater fractionation complex, as well as our propane export capabilities on the West Coast of Canada. Pembina enjoys the benefits of significant rail and storage facilities at our Redwater asset. We have about 2 million barrels of spec C3 storage and have capability to transport approximately 130,000 barrels a day of product through our rail network with unit train capabilities. This does not include our rail infrastructure at our other assets such as the Aux Sable Channahon facility, Sarnia, Ontario or Younger, British Columbia. This is a significant competitive advantage as we work to provide our customers with access to premium markets and ultimately higher netbacks. Lastly, I'd like to talk about the condensate molecule.
While condensate demand growth has certainly moderated, we have seen a recovery from 2020, and third-party forecasts suggest continued growth into 2022 as the oil sands industry continues to grow. Pembina's Peace Pipeline is well-positioned to attract incremental volumes coming from the WCSB. Further, while domestic condensate production ramps up, demand growth can be met through spare capacity and low-cost expansions of our Cochin pipeline. Now I'll turn it over to Cam. Thank you.
Thanks, Jaret. Turning to slide 33, I'm pleased to discuss Pembina's Adjusted EBITDA guidance for 2022. Based on our current expectations and outlook, Pembina is anticipating Adjusted EBITDA of CAD 3.35 billion-CAD 3.55 billion in 2022. Based on the midpoint of this range, this reflects a 3% increase over the midpoint of our 2021 guidance range. Positive momentum in 2022 is expected to be driven by higher volumes from our conventional pipelines and gas services assets, as well as contribution from new assets placed into service, such as the Prince Rupert Terminal and the Hythe Developments in 2021, and in 2022, the Peace phase VII and phase IX expansions and the Empress Co-Generation Facility.
Based on the current commodity price outlook, we see continued strength in NGL pricing, along with lower realized losses on commodity-related derivatives compared to 2021. Offsetting these factors will be a higher cost of inventory as a result of the strong prices experienced in 2021. As has been our practice for the last few years, we have again hedged 50% of our 2022 frac spread exposure, excluding Aux Sable. These hedges were executed during the second quarter and the fourth quarter of 2021. These positive factors are somewhat offset by a combination of lower contribution from select assets due to contract expirations, higher integrity costs and other operating expenses which are not otherwise recoverable from customers, and increased expenses related to the investment in continuous improvement initiatives to support long-term cost reduction efforts. I'll talk more about our continuous improvement initiatives later in the presentation.
On to slide 34. Our capital investment budget for 2022 is expected to total CAD 655 million. Given the composition of in-flight projects, the capital budget is weighted toward the pipeline division. Major components of the 2022 capital program include the completion of phase VII and phase IX expansions, as well as the Empress Co-generation Facility. Various continuous improvement initiatives and technology investments are also included in the 2022 budget. These opportunities possess strong return profiles and will ultimately enhance our ability to offer our customers highly reliable and cost-competitive services. Of the capital budget, non-recoverable sustaining capital is expected to be approximately CAD 125 million. In addition to capital investments in our wholly owned business, we expect to make contributions to Cedar LNG to fund FEED activities and to various midstream for certain minor growth projects.
I want to note that this budget entirely reflects opportunities which are fully sanctioned and board approved. As you have and will hear from my colleagues, we have a CAD 4 billion portfolio of unsecured projects, as well as nearly CAD 750,000,000 of deferred projects in our portfolio. We continue to progress this opportunity set, and a number of these opportunities will be eligible for sanctioning in 2022. Given the resilience of our business and the strong financial performance in 2021, we stand in a strong financial position. Our capital allocation priorities have always been focused first on a strong balance sheet. Our commitment in this regard has been demonstrated consistently and is unwavering. Second comes the security of our dividend. We recognize that our investors depend on the income they receive through the dividend, and we hold that sacrosanct.
Thirdly, our track record shows that we can add strategic and financial value through investment of accretive growth capital. Finally, we will allocate remaining residual cash flow either to debt reduction in preparation for future capital investment or back to shareholders via incremental dividends or share repurchases as appropriate. In 2022, cash flow from operating activities is expected to fully fund the totality of our dividend payments and our capital investment program with residual free cash flow remaining. As such, we expect to allocate up to the first CAD 200 million of excess cash flow to common share repurchases between now and the first half of 2022, which would represent approximately 1% of the company's common shares. Of course, should superior risk-adjusted returns become available through alternate forms of investment, we will naturally shift our allocation accordingly.
Additional free cash flow, should it be generated, will be available for debt repayment and/or incremental capital investment throughout the year if sanctioned. Moving to the financial guardrails, these are expected to remain firmly within their target ranges in 2022 across the board. Pembina pioneered the concept of the financial guardrails in the midstream energy industry, and they are core to how we manage the business. In 2022, continued strong performance in our commodity-exposed marketing business could lead to a slight reduction in the fee-based contribution to EBITDA. However, this would naturally accompany stronger overall Adjusted EBITDA, all else equal, improving Pembina's financial position. As you can see, the balance of the guardrail metrics are expected to be equal or better than 2021 levels.
Shifting gears, I wanna spend a moment on a couple of proof points on how Pembina's discipline and focus on continuous improvement is driving value for customers and investors alike. On the left-hand side of this slide, we've depicted a return on invested capital metric for Pembina back to 2015. This is an important management KPI for Pembina and forms part of our incentive compensation formula. You can see that the profile of the blue line was consistently trending upward from 2015 to 2019 as we added nearly CAD 18 billion of new assets to our business and sustained 10% return on capital in the latter half of that timeframe. Obviously, 2020 came and upset the apple cart. However, we reacted swiftly and re-established the trend in 2021 and 2022. We remain focused on continuing to push that trend upwards towards 10%.
On the right-hand side of the page, we are demonstrating what is essentially our direct expense cost structure as a percentage of net revenue. With this metric, a lower number implies a lower cost structure. On the top right, you can see that Pembina has become considerably more efficient from 2015 to 2020. On the bottom, we compare our 2020 cost structure to that of our closest Canadian peers. The data here shows that our continuous improvement initiatives and ongoing commitment to safe, reliable operations is driving real value. Finally, given recent headlines around inflation concerns in the overall economy, I wanted to touch for a moment on the inflation protections that are inherent in Pembina's business. Firstly, on the revenue side, many of our long-term agreements include CPI-type inflators in the toll structure.
On the short-term or interruptible arrangements, tolls have the ability to adjust to market conditions and are typically reviewed semi-annually or annually. On the operating cost side, largest components of our cost structure are labor, power, and integrity and maintenance. Given our pervasive use of employees over contractors, our labor costs are generally protected from short-term dislocations. Likewise, most of our long-term contracts carry provisions which insulate Pembina from power costs and in some cases, non-routine maintenance or integrity items. On the project side, we have procured and paid for steel for the Peace phase VII and phase IX expansions, and we have structured construction contracts to provide labor inflation protection. Finally, on the capital side, approximately 80%-86% of Pembina's outstanding debt carries fixed rates, and the weighted average term of our fixed-rate debt stands at over 15 years.
With that, I'll pass it over to Stu to talk about our projects.
Thanks, Cam. Good morning, everyone. I'm excited to provide everyone with an update on our project portfolio at Pembina. I'll first begin talking about projects within our pipeline division, pardon me, followed by projects from the facilities division and then a brief conversation about some of our projects coming out of our new ventures group. In response to customer demand for services, including to accommodate volume growth in the Montney of Northeast BC, of which Harry discussed, Pembina continues to pursue a measured, capital-efficient, economic, and orderly expansion of our Peace Pipeline system. Most notably, we're pleased to provide an update on our phase VII expansion, which is under construction.
As Scott mentioned, we've been able to lower our capital cost estimate by as much as CAD 110 million with revised estimate of a total of CAD 665 million. This is a reflection of a very highly efficient project management process, some great work by our contractor partners, and we did enjoy the benefit of some good weather at the same time as that construction. Along with the phase VII expansion, we have been progressing our phase IX expansion as well. That expansion is under construction and is moving forward. The phase VII expansion will come into service mid-2022, and we do expect the phase IX expansion to come into service soon after in the second half of 2022 as well. The phase IX expansion includes a new six-inch pipeline, 16-inch pipeline, and some additional pump stations.
We continue to progress both of these projects throughout 2022 as described. With respect to phase VIII, the project remains deferred at this point in time. We continue to do value engineering and are watching closely, looking for some resolution around the development in Northeast BC due to the ongoing discussions between the government and First Nations. We do expect to make a decision regarding phase VIII in the second half of 2022. In the Facilities division, we are under construction with our Empress cogeneration, a 45-MW facility that will provide the vast majority of power to the Empress facility, reducing operating costs and our GHG emissions at that site. Along with the cogeneration facility, we have been continuing to evaluate our expansion of our Prince Rupert Terminal up to 45,000 barrels per day.
We are looking at additional alternatives, including butane export and the use of larger vessels, to reduce our costs and our shipping times over to Japan and other places. We continue to do the engineering and expect to make a decision on that expansion in the first quarter of next year. A pretty exciting time. In total, Pembina will bring approximately CAD 900 million of new projects into service in and through 2022. Additionally, as mentioned by Scott and others, Pembina continues to develop more than CAD 4 billion of additional greenfield and brownfield projects to accommodate the many diverse demand drivers that Harry and Jaret spoke of earlier.
The projects under development include expansions of our existing assets, like new gas processing facilities, new pipelines, terminals, pipeline connections, cogens, and additional NGL extraction at existing plants. This also includes our value chain enhancing projects such as the Cedar LNG project, along with feeding the new and revised petrochemical development that is going forward in Alberta. As we evaluate and execute on a project that fall into our more historical value chain, we are increasingly seeing development opportunities for projects that are related to energy transition. As you heard earlier, we have many low carbon energy projects we can do to reduce our emissions. We are pursuing near-term opportunities in the LNG space. With our Haisla partner, we are progressing the Cedar LNG project, which will ultimately deliver some of the greenest LNG produced globally.
We've put forth a vision around a carbon capture and storage system, of which I will speak to on the next slide. Longer term, we see future opportunities to move forward in such products such as ammonia and hydrogen. With respect to the Alberta Carbon Grid, Pembina and TC Energy plan to jointly develop a world-scale CO₂ transportation and sequestration system known as the Alberta Carbon Grid. We have been working diligently through the proposed government of Alberta process and are planning to submit our applications to the government as described in that process. We believe Pembina and TC are uniquely positioned with our collective midstream skills and our extensive pipeline network to provide a very cost-effective and environmentally sound project.
We will be reducing our project costs using our right of ways and our existing infrastructure, as well as reducing the environmental impact while building out the Alberta Carbon Grid. The uniqueness of our system is to be an open access system, similar to our Pembina Peace system. It'll serve Alberta's emerging carbon capture, utilization and storage that the industry will require to continue to develop hydrocarbons, connecting multiple industry regions to key sequestering sites. Finally, you know, Scott spoke earlier of where the Pembina story is and where the Pembina story is going. We are always looking to enhance our service offering. As we develop opportunities around the energy transition and low carbon solutions, here's an illustrative example of what the future Pembina Store could look like. It includes those operational opportunities that Jaret spoke of.
About to reduce our emissions at our facilities and to capture our own CO₂. At the same time, it includes the potential for a whole new value chain around the capture, transportation, and sequestration of CO₂ for our customers in multiple industries. I'll now turn it back to Scott.
Thanks, Stu. To wrap up for today, let me summarize what we believe is our value proposition. We're diversified, we're integrated, we have strategic franchise assets along the full value chain, and we will continue to strive to seek the highest net backs for our customers and look for ways to reduce their emissions. That is a combination that our customers value and that has made us a leading provider of energy services. We have visible growth opportunities ahead of us with a CAD 5+ billion portfolio of value chain extensions and new infrastructure to accommodate the growth we expect to see across our basins. We can self-fund CAD 1 billion-CAD 2 billion of capital a year without shareholder dilution from issuing new shares. We have a very strong balance sheet and a commitment to executing our strategy within our financial guardrails.
We are focused on a wide range of ESG priorities and solutions. These include a commitment to equity, diversity, and inclusion within our workforce, building meaningful partnerships with Indigenous groups, and advancing projects that can reduce our own and others' emissions. Finally, we have a talented and dedicated workforce to deliver the above, who I am humbled to work with every day. With that, we'll wrap things up. We would once again like to thank all of our stakeholders for their support. Operator, please go ahead and open the line for questions.
Certainly. Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. Our first question will come from Matt Taylor with Tudor, Pickering, Holt & Co.
Yeah, thanks for taking my question here. Perhaps with Randy on the call, can we just go back and revisit the decision to be disciplined during the Inter Pipeline process, despite the significant amount of growth that was highlighted, you know, tied to asset overlay and synergies? I guess the reason I wanna go this direction is it seems the decision was to prioritize discipline and balance sheet strength overgrowth . Is this an acknowledgement of perhaps a slower growth rate than investors are typically used to with Pembina? Or is it more a view of a focus on self-funding that growth from existing assets could give investors a similar growth rate without having to take on, you know, risk outside your control that may or may not have been tied to that deal?
Thanks, Matt, for the question. It's a rather involved answer you're looking for. You know, we would've been happy to complete the IPL transaction at a price that was appropriate to be paid. Adding those assets would've made a lot of sense. We didn't add those. We got paid a fee to walk away.
We're not unhappy that we didn't acquire those assets. We, as was mentioned, have CAD 4 billion worth of other opportunity in front of us. We will continue to invest in those types of assets and look for other opportunities that come along. I don't know if that really answers your question, but if you wanna have a secondary, go ahead.
Yeah, no, thanks, Randy. Then maybe a comment from Scott as well, just in terms of how you're thinking about growth rate and, you know, 'cause here we've got lower CapEx than investors are historically used to, but the offset there is you've got excess free cash flow. Maybe a comment on, like, how you see growth rate trending over the next few years compared to that historical run rate investors have been used to, and any sort of tailwinds that you might see that we can expect.
Sure, Matt. You know, I think we're just at a certain time in the cycle, where we have a lot of projects that we're working on that just aren't at the stage where we've FID. I think what Cam tried to highlight is the reduced capital program, you know, really is twofold. Number one, we've had some pretty significant cost savings, which obviously is good news for everybody involved. That's one aspect I'd point out. The second one, as Cam highlighted, was, you know, the way we do our budget process is these are, you know, board-approved, management-approved projects. You know, other than the Cedar contributions, obviously, we're still going through feed there, but everything else is board-approved. You know, we don't have a plug or a placeholder for future growth.
We fully expect, you know, that number to increase as we move through the year and bring projects to the books. Just for example, if we were to sanction PRT expansion in phase VIII, that would add between CAD 200 million-CAD 250 million of capital to the budget. But that's not how we approach it. You know, I think what we tried to highlight is we still see a pretty significant backlog in our base business. We also see some emerging opportunities as it relates to ESG projects as well that we've tried to highlight. I wouldn't expect, you know, a significant reduction in long-term growth. We still expect to add projects and, you know, hopefully by midyear, we've added to that backlog.
Yeah. Great. Thanks for taking my question, Randy and Scott.
Our next question will come from Jeremy Tonet with J.P. Morgan.
Hi, good morning.
Morning, Jeremy.
Randy, I just wanted to follow up on the CEO change, if it's possible to ask here. Just wanted to see, you know, what were the factors that fed into making the change in CEO before kind of having the next, you know, the next person in line as far as a finalized candidate? Just wondering if you could provide any thoughts into that, and I guess what timeline should we expect for kind of the whole process to be finalized here?
Okay. Thanks, Jeremy. You know, there's, as I mentioned in my opening remarks, there's a life cycle for CEOs. There's also. We're at a bit of an inflection point in the company right now, inflection in terms of, you know, taking on more ESG opportunities, more green opportunities. And we have this, and I'll call it a luxury of having such an established management team here, with Scott leading it, that the board had no concern about making a smooth transition from Mick, who ran the company for eight years, to Scott and the management team here. That was really the only reason that was sort of our reasoning behind it, that this seems like a good time.
We're starting a new year, new budget year, and things like that. That's really all there was to it, Jeremy. Oh, and you asked about the time cycle. As I mentioned, you know, this is the most important thing a board can do, is to select a CEO. We're going to be careful. We're going to be diligent and thorough in going through that process. Again, I go back to the luxury of having a strong management team in place. We don't see that we're in a panic to make a decision. We'll make a timely decision. If you wanna put a time on it, you know, six-12 months would be a good estimate.
Got it. That's very helpful. Thank you for that. Since we have the opportunity to talk to you a little bit here, just wanted to see, I guess, for the strategic outlook moving forward, it seems like there's a number of, you know, conventional as well as energy transition opportunities for Pembina as outlined today. But just wondering, as you think about the company and the strategic outlook and, you know, the current footprint, do you see any desire to kind of expand that geographically or otherwise? Just trying to see, you know, if there's any changes to the strategic outlook for Pembina at this point.
No, I don't see really any changes. You know, we had a strategy session a week ago when we reviewed where our strategy was. You know, we have some geographic opportunities in taking our product to different geographies. Certainly in terms of ownership, in terms of where we see our facilities, we're pretty much sticking to our knitting on that. I'll turn it over to Scott for an answer.
Yeah, Jeremy, I think as we highlighted over the previous 12 months, we still see it as Advantage Canada. You know, Harry did a great job outlining some of the pillars that we see are working in our favor. We're pretty excited about the opportunities here at home. You know, I think that's the focus. We'll always look at you know, opportunities that integrate into our value chain. If there's smart investments around Alliance or Aux Sable in the U.S., we'll definitely have a look at that. The main focus right now is still on Canada.
Got it. That's very helpful. I'll leave it there. Thank you.
Next, we'll hear from Patrick Kenny with National Bank Financial.
Yeah. Good morning, everybody. I guess I'll stick with the trend here and kick it off with a question for Randy as well. First off, I appreciate you being on the call, Randy, today. Just given mixed track record and, you know, having been consistently viewed by your stakeholders as, you know, one of the top CEOs in the space, I'm just wondering, given the lack of transparency that has been offered up here as, you know, reasons for the leadership change, and if there is a credibility overhang that does weigh on the stock price or your relative valuation going forward, and I get the life cycle and the inflection point comments, but just given how fast things can change these days,
how do you go about convincing investors that the new CEO and the board are fully aligned on all strategies going forward, whether it be business development, corp dev, ESG, especially since, you know, on the surface, and correct me if I'm wrong, but it doesn't appear to be a material change in the direction of the company today versus a month ago, which of course, more often than not, would come with an unexpected change in leadership.
Okay, Pat, thanks for your question. I don't know how much more I can say about the change. The strategy is still basically the same strategy that we had going forward, as you know, you heard Scott and the rest of the folks outline that. There isn't anything really more to say. It just seemed like an opportune time to make a change. So that's what we did. I think, you know, our strategy as we go forward is very much the same as what we talked about. I mean, maybe a little greener than it was four or five years ago, obviously. We're still no radical change in what we're gonna do.
I think you're asking your question, how can we prove that to the investment community? I mean, I think, you know, you've heard today what the strategy is and the opportunities and the things, and they sound a lot like what we've been talking about for a number of years with the addition to, you know, expanding the store to have a green theme to it. All I can say is, I mean, I think you'll just have to watch what we do and see that there is no significant change in how we carry out our business.
One thing I may have missed in the slides, but I don't think I heard too much on the Chinook Pathways partnership. Perhaps Sue or Randy, you could just confirm the commitment to pursuing TMX ownership, and if there's anything in the budget related to the partnership through 2022.
Yeah, Patrick, it's Harry Andersen. Good morning. Thanks for the question. Yeah, we're committed. That was confirmed last week at our board strategy session. The joint venture with our partner is going very well. You know, so we're feeling really good about where we sit here today.
Okay. Appreciate that.
Pat, just to confirm, there's nothing. Obviously with the stage of where we are right now, you know, there's some very moderate spending in the budget, but it's moderate at this point, given the pre-sanctions.
Got it. Okay. Maybe one last one for me, if I could. Just back to the phase VIII expansion. Just curious if there's any cost savings realized from phase VII that you might be able to replicate for phase VIII. Also, maybe if you could provide a bit more color on, you know, what gives you confidence that you'll be able to move forward with the expansion over the next six months or so. You know, if there's any insights into the progress being made between the B.C. government and First Nations or any other regulatory milestones that might be on the horizon through the first half of next year.
Well, I'll take the first part of your question, Patrick, and then I'll ask Janet Loduca to address any BC dynamic with the Blueberry River First Nations. In terms of cost savings, yes, absolutely. We've been doing enhanced engineering on phase VIII all the way along with the success we've had on phase VII. We've also integrated a bunch of that success into phase IX, and so we're seeing some good results early on from that as well. In terms of cost, the only thing on phase VIII that I'll note is obviously commodity prices across the entire complex are up, which includes steel prices and pipe prices. We don't expect anything material. We still expect to see some positive downward movement in terms of the capital cost of phase VIII.
In terms of timing, that's gonna be by and large driven in terms of what our producers are able to do in Northeast B.C. around the current Blueberry dynamic. I know Janet's very close to that, so Janet can take that one.
Yeah. Thanks, Harry. Just to highlight a couple of things. One, the decision doesn't impact existing infrastructure. We're working, you know, to continue to work on supporting our ongoing safe operations. Another important thing to note is that the Blueberry River First Nations decision impacts all development, not just oil and gas. There's a lot of focus on it across multiple industries. We've got very strong relationships with First Nations communities in Northeast BC and a strong track record, as we talked about, of conducting our business in a way that minimizes our impacts and benefits communities, working very closely with the government, with communities, and with our industry peers to find a path forward. I don't have a timing I can give you specifically on that, but I can assure you there's a lot of attention on it and we see a path forward, at some point.
Okay, that's great. Thanks everybody for your comments and all the best over the holidays.
Thanks, Pat.
Thanks, Pat.
Our next question will come from Rob Hope with Scotiabank.
Hello, everyone. Two questions for me. First one is just in terms of the outlook for M&A and how it fits into the strategy. You know, Pembina has been, you know, we'll say, an M&A acquirer through the years. When you take a look at your suite of assets, do you expect to continue to be on the M&A path? In terms of this green transition, you know, could M&A be a kick starter to give yourself a larger platform there?
Thanks, Rob. It's Scott here. I'll take that question. Certainly M&A has formed part of our track record. Generally speaking, the platform acquisitions have added a leg to the stool. You know, as we sit here today and we think about our base business, we're pretty comfortable with where our assets are. You know, that being said, M&A is always on the radar. It's something we look at. We don't feel the need to go out and do anything at this moment. We're comfortable. As opportunities arise, I would say we would be more in a reactive versus proactive mode as it relates to M&A right now. As you know, you can't always control the timing of M&A. Sometimes things come for sale, and you have to look at it.
Happy with where we're at, but we'll be reactive if things arise. Now, as it relates to your second part of your question to kickstart ESG initiatives, you know, I don't think so. You know, when we look at the platform today, Stu's team has developed, you know, a pretty good backlog of opportunities that we're working on. Again, looking to leverage existing expertise, existing infrastructure where we can link it to our assets. You know, I think for the near term here, we're focused on building assets on a greenfield or brownfield basis versus M&A to kickstart that area.
All right. Thank you for that. Just another capital allocation question. Just taking a look at the, you know, weighing the options between share buybacks and dividends, it appears that the preference in 2022 will be share buybacks. When you take a look at, you know, the dividend, is it just where your share price is right now, or do you think you could see it increase towards the back half of the year, depending on where, you know, the opportunities are on the capital front?
Hey, Rob. Thanks for the question. It's Cam here. I think that's the right way to think about it in the sense that as you know, as we said last year about this time, you know, we have always been focused on providing a stable and growing dividend to our shareholders. That's been an important part of our value proposition. Last year, obviously, we took the position that you know, that growth and that dividend wasn't being rewarded by the capital markets, and so chose to allocate that capital elsewhere. Obviously, we've you know, seen some share price accretion since that time. I think you know, that is an active conversation that we're gonna have.
I certainly wouldn't say that, you know, a dividend increase is out of the question for 2022, but it'll be a conversation that we have with the board, you know, throughout the next few months. Often we will make that decision around the Q1 release timing in May. You know, it's something that we put a lot of value on and, you know, we certainly wanna balance the interests of all. I think to your comment on share repurchases, you know, certainly, in the current context of the market, you know, there's some appeal to that as a use of free cash flow. As I alluded to in my remarks, you know, we're obviously just gonna continue to weigh that.
It's not at any price type of environment because we are disciplined. We'll just keep that in consideration as time goes on here and we make those decisions around capital allocation. I think to close out, you know, as Scott said, and you've heard, you know, we do have a number of projects that are moving forward, you know, some that we're excited about and, you know, potential for more in the first half of the year. That really drove the focus on clarifying, you know, the free cash flow allocation for the first half of the year and leaving a bit of open-endedness to the second half 'cause we, you know, we'll see how things evolve over that time.
Thank you.
Our next question comes from Linda Ezergailis with TD Securities.
Thank you. Just wanted to get a better understanding of this energy transition revolution and the pace, recognizing that M&A isn't necessarily required to kickstart or accelerate the process. When we look at your backlog of growing energy transition and decarbonization opportunities. How might we think of the proportion of your capital that gets allocated to more of your traditional core business versus capital allocation over time? Where do you see maybe in 10 years your business mix weighting towards this growing potential platform?
Thanks, Linda. I don't know if we have a forward-looking statement that goes out 10 years. So take it with a grain of salt. You know, I think we're in the early stages of the life cycle here. As Stu said, we're working on some projects. We would hope, you know, those become reality as we move through 2022. Then you generally have a couple year build cycle. From an actual contributing EBITDA perspective, you know, we're probably two-four years before we start to see that hit the bottom line. You know, I think from a Pembina perspective, you know, as I said earlier, we can fund about CAD 1 billion-CAD 2 billion a year before we start having to issue shares.
Being self-funded is a pretty important marker for Pembina. We think that's important. We think that's what investors are looking for. You know, I think as we move forward here, it's going to be looking and balancing many different aspects of the portfolio. You know, generally speaking, we have some very exciting opportunities within the base business. As it sits today, those returns tend to be slightly higher than some of the energy transition projects that we're looking at. But we also have to balance, you know, all of our stakeholders, as we said previously. You know, right now we have a good backlog. We're not in a position where we have to pick and choose and make that capital allocation decision.
As we move forward and if we're successful in securing the backlog, you know, there may be opportunities or situations where we do have to make those decisions. It's really tough to generically answer that question just because there's so many different factors that come to play here other than just pure returns.
Thank you. If I can just ask a quick follow-up, a bit more pedestrian. Appreciate the update on Alliance and recontracting. Would it be possible just to get a sense on a consolidated basis, what are the next contract maturity that we might see in your operations? How might they be recontracted, whether they be higher or lower? Any sort of sense of that would be appreciated for the next few years.
Yeah, Linda, I don't think we're gonna get into the granularity of individual contracts. I would say, you know, our guidance as Cam laid out reflects, you know, certain new contracts we've entered into as well as some certain contracts with lower rates. You know, obviously Ruby comes to mind there. I think, you know, our guidance is a reflection of how we see the business playing out.
Thank you. I'll jump back in the queue.
Our next question will come from Robert Catellier with CIBC World Markets.
Hi, good morning, everyone. Thanks for the presentation today. You've answered the majority of my questions, so these are gonna be follow-ups. I'd like to go back to the dividend topic again and maybe ask it this way. I understand why you would have been reluctant to raise the dividend in 2021. Under what circumstances could you see an increase in 2022? Maybe you can speak to you know the current dividend yield both on an absolute and a relative basis, which one of those two is more important to you? You know, the absolute current yield now, or the relative yield and growth compared to your peer group?
Yeah, Rob, I think for me, I look at the absolute level, not the relative level. I think that's what we care about. We care about our business. You know, peers can come and go and have different balance sheets, different investment philosophies. I think we're focused on ourselves. Clearly, we're not happy with where our dividend yield is right now. We don't think it reflects the strength of the underlying business. I think as it relates to the dividend, you know, as Cam highlighted, we typically assess the dividend in Q1 of every year and make that decision around our Q1 results. You know, obviously 2020 was slightly different where we did it in January, but that was off the back of closing the Kinder Morgan Canada acquisition.
What I'd say is we're back to our normal cycle now of evaluating it as it relates to Q1. In terms of the factors, you know, I think there's a few different things we'll consider as we move forward. You know, as we've talked about, we see potential for the CapEx program to increase through the year. You know, I know I'm reiterating what's been said here previously, but we expect it to grow. It's really reflective of the current reality. Depending on how much the capital profile grows is certainly one factor. You know, marketing is another factor.
You know, we tend to base our dividend off of our fee for service business, but the marketing drives, you know, the amount of free cash flow we have that you can't ignore as it relates to the capital program as well as the share buyback. It's something we'll consider. Obviously, there's multiple factors that go into it. I think the point is a dividend increase is not off the table for 2022. We'll continue to assess it as we move through to May.
Okay, that's very helpful. Just turning to the repurchases. I'm curious as to the motivation to provide a timeline of the first half of 2022, because it would seem that the factors that you discussed with respect to the dividend would apply to repurchases as well. In other words, you know, if the growth materializes and your capital budget grows, you know, if you do spend that CAD 200 million on repurchases, you know, that could impact cash flow available for the growing budget. Just how did you pick the timing for that, and under what circumstances could you see the CAD 200 million amount grow?
Rob, it's Cam. I'll try and address that question. I think the first part of it was really as you think about what you know what could happen throughout the year and you know the potential as Stu and Scott talked about for additional projects being sanctioned you know the burden of funding you know in this year in that event would likely come in the second half of the year. Ultimately, you know, as we go through the year, we're gonna have a better sense of how you know the year plays out from a business performance perspective, but we're also gonna have a better sense of where we are on a capital opportunity and sanctioning perspective.
As we thought about, you know, providing a strong message here today, you know, our perspective was, you know, we could either be flexible on the timing of the share buybacks throughout the year, or we could be a bit more concrete on the first half of the year with CAD 200 million. Ultimately, we felt like the best outcome was to be more concrete, more definitive on that. Obviously, always subject to, you know, to the comment I made around risk-adjusted returns, but wanting to add some definition to the message today. That was. Those two points are really what drove the decision.
Yeah, I agree it is more credible with the timeline attached to it. Last point for me is just a clarification on phase VIII. You did reference the Blueberry River First Nations issue. And so I'm wondering if advancing phase VIII to FID status is solely contingent on a resolution of that issue, or is there something more to it like producer spending plans? Thank you.
Yeah. Robert, good question. I think there's a couple of pieces like Janet had mentioned. Existing approvals are still valid, so producers can draw. The freehold land issue is getting worked on, so we see line of sight there. It's really seeing some incremental volumes from our producers. Even that said, we've had an incredible run here optimizing our existing system. We'd sort of need to see a material amount of volumes coming over the long term together with probably some longer-term resolution on the Blueberry issue to see us sanction phase VIII. We've just had such an incredible run of optimizing our system to get additional volumes on that we need to see that material volume over a longer term materialize.
Great. Thank you.
If you do find that your question has been answered, you may remove yourself from the queue by pressing star two. Once again, the signal for a question, it is star one. We'll take our next question from Robert Kwan with RBC Capital Markets.
Great, thank you. If I can just come back to the buyback, and a couple of questions around what we might be able to read through into this. First, just coming back to the timing in the H1, should we be kind of taking away from that your confidence in at least achieving the low end of the guidance range? As it relates to M&A, well, CAD 200 million isn't gonna swing things in either direction. Clearly, going forward with a buyback is a signal by you of how you feel about where your share price is. That's not very congruent with turning around and issuing stock for M&A. You know, how are you thinking about that?
Sure. Let me start with the second piece, Robert. You know, I think as we said, M&A is still on the radar, but we're in more of a reactive mode versus a proactive mode. It's not, you know, we're not out hunting today for M&A acquisitions, which, you know, I think would be more of a concern around the share price. I'm not sure that I 100% agree with what you're saying. The other piece, as it relates to the low end of the guidance range, I do think we have confidence in it. You know, typically we put out a range that we feel extremely confident.
We stress test it, we scenario, we run scenario analysis, and I feel confident in the lower part of the guidance range. You know, most of that will be driven by marketing results. As you've seen over the last two months, marketing results have bounced all over the place. There's been significant volatility in the market as it relates to 2022, which is why we continued our historical trend of hedging up to 50% of our frac spread. Most notably at our November timeframe, I believe we were about 28%- 27%, or sorry, 37% hedged. As we moved through the back half of November, we continued to put, you know, hedges in places at, you know, pretty strong rates to help protect 2022 and give us a lot of confidence in the downside range of that guidance.
Just to finish. On ESG, a lot of detail in the presentation and a lot of time upfront on this call, and not that it wasn't important before, but can you talk about how the focus on ESG has developed over the course of 2021 and specifically, and I don't know if this is for Randy, can you talk about how achieving ESG metrics factor directly and explicitly in the management compensation before today versus how it will factor in going forward?
I'll give Randy a moment to think about that, Robert. I think today you know, what was a logical point is I think Janet highlighted, and I'll let her make a few comments here in a second. There's been a lot of work done, 2020 and 2021, and we really, I don't think have pulled it all together for our stakeholders other than we obviously have our ESG report, which someone can download and read. You know, I think we're really proud of all the work we've done, and we just haven't had an opportunity because we didn't have an investor day due to COVID in 2020, nor did we have one in 2021.
This was really an opportunity to pull it all together and I think update everybody so we're all aligned on what Pembina is doing, as it relates to ESG. It just felt like a good time to you know highlight the great work that the teams have been doing. Janet, anything you wanna add?
Yeah. I agree with you, Scott. There's been a tremendous amount of positive work that's been happening at Pembina for years. You know, when I joined the company late last year, I was really impressed with all of the different work streams that were underway. I think of 2021 really as our opportunity to bring it all together and put some structure around it, so that we were in a position to announce both the EDI targets and the GHG emission intensity targets this year. It's just an evolution. We're gonna continue to increase our focus. We're gonna continue to embed the ESG metrics into our policies, our practices, our incentive compensation. This year was the first year where we had ESG explicitly in the incentive compensation.
We were focused this year more on setting the targets, getting those established, and improving our disclosures. Going forward, what we'll be focused on is achieving those targets. We're really excited for that. As I mentioned, we've got solid plans on both the EDI targets as well as the GHG target. We'll also be looking at some of the other areas we're historically very strong in, like Indigenous spend, et cetera. All of that's gonna be factored into our incentive compensation going forward.
Good. Robert, if I could just maybe add to that. We talk about ESG as a bundle, but really if you separate it out into the E, the S, and the G, safety has been a part of the compensation, of the short-term compensation as much as a 10% weighting in safety for, I don't know, 10 years, for a long time anyways. The environmental part we picked up of course in terms of monitoring spills and things like that, you know, more of the in-house type of activities, right? That has always been included in it as well. It. From a governance point of view, we've factored into compensation.
It was, you know, how well we kept our name out of the newspaper or things like that, or how we structured the board and how we did things like that. It's really the E part that has picked up significantly in the last little bit. Yes, as Janet pointed out, it is part of the compensation formula and will continue to be so.
Got it. Look, you mentioned that today was a logical point to highlight, and/or a logical point for you to talk about this. Is that to highlight all the work that you've done to date, or are you trying to project a new message going forward? As it relates to comp, are the ESG metrics going to be a greater proportion of management comp going forward?
I don't know if it's gonna be a greater proportion. Robert, I don't have that at my fingertips as exactly what it is. But as I said, safety was 10% of the comp. You know, we might do a bit of a blend around ESG on that, but it will be a significant part of everybody's focus as we go forward because it's not only the right thing to do, as Scott has outlined, there can be economic benefits from doing it well.
Great. Thank you.
Our next question will come from Ben Pham with BMO.
All right. Thanks, and good morning. Continuing on the ESG question. You've mentioned a couple of times around the inflection point on ESG or right now, and it sounds like you also have the balance sheet capacity to do both traditional investments and even step up the low carbon opportunity as well. Is the hesitation really for Pembina, 'cause it sounds like you're more of a let's get our feet wet here. Is it more of the return that's causing the hesitation here? Like what do you need to see to ramp up spending on the low carbon side?
Yeah, Ben, I don't think it's a hesitation. Like I said, most of what we described today really was bringing together everything we've been working on in the background. You know, I think Stu's team is working very, very hard on this area, and I'll let him chime in. I mean, at the end of the day, as you know, projects take a long time to assess, engineer before decisions are being brought forward. We're not approaching these decisions really any differently than we're approaching opportunities in our base business. Stu, is there anything you wanna add?
So Ben, we're looking at many things, and I don't think it's we evaluate every project the same way. When we're looking at our historic businesses and when we look at our ESG opportunities, we bring them forward, we present them. They must make sense for the company. The integration has to be there for us. We spend a great deal of time on ESG projects educating what they are. You have the opportunity to continue to look at how it fits, what advantage it would create, you know, who's the right partner, who is the person that has the technology. Like, many people, as you can appreciate, are bringing new technologies every day.
Part of our work is to try to evaluate the doability and who's going to be the winning horse in that race. We're spending a great deal of time with new technology development, with fitting it into our integrated system, how does it fit in the overall portfolio for Pembina, and is there a long-term strategic advantage for us?
How do you think about also weighing, when you think about traditional versus low carbon comparisons, you got the traditional high return, maybe less visibility long term on cash flows. You got the low carbon, maybe lower return, but longer duration, higher multiple. Like how do you weigh it in the overall cap allocation?
Yeah. Ben, you know, I think as I addressed previously, we're in a bit of a luxury right now where we're free cash flow positive, and I think that we can assess the projects on their individual merits. You know, as you know, as we move through this year and hopefully bring you know, several projects to fruition, you know, we still see, given the sequencing and timing of the cash flows, we could be in a situation where we have the right capital structure, we have the right capital allocation framework to actually do both. You know, as I highlighted previously, if we were in a situation where we had to make some decisions, you know, I do think that it comes down to more than just pure returns.
Obviously, any sort of low carbon opportunity would still have to, you know, be attractive to our shareholders and meet internal hurdle rates. You might be willing to do, you know, a marginally lower return than our base business if we were capital constrained for other reasons and for other stakeholders. You know, that's a position we're not in today, but certainly worth thinking through and certainly hopefully will come to fruition later this year in early 2023 as we bring incremental projects back.
That's great. Maybe one last cleanup question on you mentioned to Scott the guidance, the biggest variability is marketing. Is there anything else that we should think about? Is the midpoint that P50 on marketing that was referenced in the last conference call?
I'll turn it over to Cam to discuss.
Yeah, Ben, I would say, you know, with where we're at right now, you know, certainly the midpoint of the range would be above a P50 level on a historical basis. You know, that's just where we are in the cycle. Tough to calibrate exactly what that is. You know, certainly I think if you take my comments in the opening section around, you know, looking at 2021, obviously we don't, you know, at this point, with where this strip is, we don't have the same, I guess, drag from the hedging losses that we had in 2021.
The offset to that is the higher cost of products as we've been adding inventory throughout this year, obviously at prevailing rates, versus 2021 when we were obviously adding inventory at much lower rates. You know, I think it's not quite as simple as adding, you know, the P50 to that middle point. I think you had another question there, but it's slipped my mind.
Yeah. More, anything else that's driving the CAD 200-million-dollar variability?
Yeah. Thank you. You know, I think there's, you know, obviously just a couple pieces there. You know, there's some spending obviously that we have in there, which the timing of which and obviously you always budget your work plan throughout the year. As you go through the year, you know, make decisions on what needs to be done, what can be safely deferred, what moves up. The timing of spend always occurs.
I would suggest that you know, any prolonged impact or a prolonged settlement of the Blueberry River First Nations ongoing issue, you know, could have a little bit of downside with respect to you know, activity in Northeast B.C. That would be you know, on the moderate side. You know, we're talking you know, in the tens of millions there. It's obviously dominated by the marketing business.
Okay. That's great. Very helpful.
Our final question will come from Andrew Kuske with Credit Suisse.
Thanks. I guess it's still morning in Calgary, so good morning. If you could maybe just give some context, and this is a big picture question, on how you think private equity's influence in the basin sort of pans out. Obviously, Brookfield's got a hybrid model and just bulked up. You've got a relationship with KKR. Not private equity, but alternative capital being Wolf. You know, they're in the basin in a fairly meaningful fashion. I guess, how do you sort of see that as an opportunity and then also maybe a potential threat?
Sure. You know, maybe I'll start with the threat. Obviously, new entrants, you know, some parties are being more aggressive. Certain parties might be able to compete on a cost of capital basis and be more aggressive as it relates to that. You know, I think from a Pembina perspective, you know, we think we have a good relationship with all those parties, and we see them not only as threats, but also opportunities. With our working relationship with all those parties and previous discussions, you know, we see opportunities to enhance our franchise and continue to work with these parties. You know, our relationship with KKR has been excellent since we got into that through Veresen Midstream, very collaborative.
We see the ability to work with these parties as well. You know, as it relates to new projects and new opportunities, you know, the one thing we have is a pretty exciting footprint, a vast footprint, and we think that we can leverage synergies and really, you know, our synergies will compete potentially with a lower cost to capital, if you get into that situation. But again, we think with the constructive relationships there'll be opportunities. Over time, you know, private equity comes and goes, and there might be opportunities to consolidate some of those positions as well, which also leads to potential opportunities down the road.
That's very helpful for context. Then maybe just continuing on the theme of consolidation, potential consolidation. When you think what's happened from a producer standpoint in the last little while, how have your conversations changed with your existing counterparties and then maybe some prospective counterparties, and knowing that you've basically touched pretty much everybody given your footprint?
Sure. Maybe I'll let Jaret Sprott or Harry Andersen weigh in on that front.
Morning, Andrew. Jaret here. Yeah, I think one of the biggest things that we're seeing from the consolidation is the opportunity for those specific areas to grow. You know, Harry got a lot of questions around phase VIII, for example. You know, we focused on Northeast B.C. feeding into that. When you look through that Alberta corridor from Wapiti down into, you know, down into the Kakwa area, you know, there is a lot of growth in there. There is consolidation happening in there, for example. People are buying those assets to grow them. You know, and those barrels, you know, will ultimately, you know, Pembina has assets in the area, and Pembina will be able to capture those barrels.
Consolidation from that front is exciting for us because that means that typically the asset's gonna get drilled up. With respect to obviously some of our customers are getting bigger. We've got great relationships with them and you know we're looking forward to you know servicing them at a greater level.
Okay, that's great. Thank you very much.
We have no further questions queued at this time. I'll turn things back over to Scott Burrows for any additional or closing remarks.
Well, thanks, everybody. Thanks for joining us today. I think as you've seen today, you know, we have a lot of positive momentum as we end 2021, and we're really excited about 2022 and what the future holds. Thanks everyone on the call. Thanks to Randy for joining us today, and we will talk soon. Thank you.
That does conclude today's call. Thank you for your participation. You may now disconnect.