When Enbridge announced earlier this month it would acquire Spectra Energy and create the largest energy infrastructure company in North America, the deal reverberated for its sheer size. But the logic behind the merger — access to gas transportation capacity in the Northeast and Mid-Atlantic — was already a familiar theme.

In September of last year, Energy Transfer Equity announced it would acquire Williams Cos. in a deal valued at almost $38 billion. Williams has an extensive roster of gas projects, but its Transco pipeline is probably most important. The 10,000-mile line stretches from South Texas to New York City and delivers gas through the Southeast, Mid-Atlantic and Northeastern states, into major consumption areas for homes and power plants.

The deal ultimately tanked, though not because of the gas assets. While ETE officially pulled out because its counsel was unable to deliver a tax opinion on time, the company was widely seen to have had buyers remorse as oil prices fell and lowered the value of the deal. That merger is still in dispute.

But in March of this year, two other companies had better luck. TransCanada Corp. reached a deal to purchase Columbia Pipeline Group in a deal valued at $13 billion.

Russ Girling, president and CEO of TransCanada, in a statement called the deal "truly transformational" for his company. "CPG's interstate pipeline and midstream assets sit directly on top of the fastest growing areas of the Marcellus and Utica Shale regions," he said. "This provides us with a complementary asset base, a substantial growth pipeline network and a broad team that has a solid track record of executing on projects and delivering results."

That merger closed July 1, about a month after ETE terminated its bid for Williams.

CPG brought more than 15,000 miles of gas pipelines into the TransCanada structure running from New York to the Gulf of Mexico, with customers in 16 states.

The Enbridge-Spectra deal is similar, in that Spectra has a fairly awesome complement of gas assets. 

In addition to the 1,100-mile Algonquin Gas Transmission system in the Northeast, the 1,500-mile East Tennessee line along the Mid-Atlantic and more than 700 miles of pipeline supplying Florida (and a half dozen other lines), Spectra also owns Texas Eastern Transmission, a 9,000-mile giant that supplies gas peakers in the Northeast with gas from Texas.

"Some would say it's the best infrastructure in the Northeast," said Rob Thummel, portfolio manager at Tortoise Capital. "The attraction here is basically the Northeast … you want to get into the Northeast."

Gas assets are 'hard to duplicate'

In a conference call with analysts and reporters, Enbridge President and CEO Al Monaco said his company had been discussing ways to diversify its asset base for at least two years.

While both Spectra and Enbridge have strong value by themselves, Monaco said the assets and timing were right. "We're bringing together what we believe are the highest quality liquids and natural gas infrastructure franchises in North America under one roof," he said. "We're talking about hard energy assets in the ground, infrastructure that's critical to connecting supply with demand, driving economic growth and serving daily energy requirements across North America. These assets will generate stable cash flow for many years to come."

"Pipe in the ground is gaining in value as well, because this infrastructure is so hard to duplicate," Monaco added.

A transcript of the call can be found here. Enbridge declined to comment further.

“Ultimately the driver is the Marcellus Shale," Thummel said. "It has really established itself as really one of the lowest-cost basins in the world. What that means is, there is a lot of additional production coming out of the Marcellus and that gas has to go somewhere. That’s why Spectra has been so successful.”

But pipelines are getting harder to build: Environmentalists are opposing not just specific routes, but the idea that more capacity is needed at all. Renewables, efficiency and demand response have cut the need for some capacity, though by how much depends on who you ask. 

One way Spectra has been mitigating some risk has been to partner with utilities. Earlier this year Spectra received authorization from the Federal Energy Regulatory Commission to construct its Sabal Trail Transmission pipeline. Working with NextEra Energy and Duke Energy, the 500-mile line would deliver gas to the Southeast, including firm transportation services to Florida Power & Light and Duke Energy of Florida.

But that strategy may not work in Massachusetts, where the state's Supreme Court ruled utilities could not charge customers to develop the line. That caused Eversource Energy and National Grid to pull out of Spectra's proposed Northeast Access pipeline.

But even before the court's decision, the pipeline had faced pushback. Last year Massachusetts Attorney General Maura Healey (D) released a study concluding demand response and efficiency — not new gas capacity — was the cheapest and cleanest option to meet power demand. 

All of this makes existing gas pipelines all the more valuable, as does increasing demand for the resource. Natural gas is expected to outpace coal as the top power generation fuel in the U.S. in 2016, and EIA forecasts about 8 GW of gas generation will be added to the grid this year. 

Even as renewable energy penetrations increase, gas is expected to play a role in integrating the variable generation resources, putting it on firmer ground than the chief resource it is displacing — coal. 

"Coal has a long way to go first. From our perspective, natural gas is still the most practical way to improve the environment," Thummel said. "Utilities are shifting away from coal, but there’s still a significant amount. Renewables are surging, no doubt, but in most cases for large scale renewables to really make a significant impact they really need gas as backup."

Deal is large, but likely straightforward

Enbridge is offering a stock-for-stock deal that values Spectra at $28 billion, and both companies' boards have already approved the merger. The companies say they expect the deal to close early next year, pending several regulatory approvals.

Once completed, the two oil and gas infrastructure companies would create a combined entity with an enterprise value of about $127 billion.

Monaco told analysts the companies expect the deal closing in the first quarter of 2017; shareholders will still need to approve, however, and those votes will happen either by the end of the year or in January. "Regulatory approvals could extend modestly beyond that time frame," he said, including Hart-Scott-Rodino Antitrust compliance and approval under Canada Competition Act.

Thummel said he expects the deal to move forward without much difficulty. "There's not a lot of impact on the end users. It's potentially beneficial," he said. "For the consumer, the goal is to keep prices low and a larger entity, collectively with a larger asset footprint, hopefully trades at a better valuation and the cost of capital is low."

"It's a big deal," he added. "But because of the nature of the pipelines I don’t see it being an issue."