Newhaven fund manager Ryan Bushell has significant natural gas infrastructure exposure through companies such as TC Energy Corporation (TSX:TRP)
Ryan Bushell | November 2, 2021 | SmallCapPower: The world is dealing with acute energy shortages particularly related to natural gas. I have been writing about the potential for such an event for some time given changing consumption patterns and preferences combined with underinvestment in traditional energy sources. An abnormally cold winter in Europe and Asia last year left inventories depleted and in need of restocking. Then over the summer Europe’s increased reliance on wind and solar generation failed them when these renewable resources fell well below long term averages, failing to provide adequate power generation during the peak electricity demand months for air conditioning during the summer:
This left natural gas to fill the power production void, but now with winter approaching and supplies very tight, Europe is scrambling to conserve and secure energy resources as even a normal winter will stretch them to an uncomfortable position. Similarly in China, two decades of decarbonizing initiatives left coal supplies low and utilities wary to invest. At the same time China has aggressively built out their electric vehicle fleet, putting increased stress on base load power generation. Natural gas, again, was left to fill the void, but with prices skyrocketing this quarter many utilities have cut power intermittently rather than face financial destruction. Although some of the factors that brought on the natural gas shortage in 2021 were weather related, this is not a one-off event. Policies in China to displace coal and in the developed world to build renewable generation are both structurally positive for natural gas in the short, medium, and long term.
Canada is well positioned with abundant natural gas resources and associated infrastructure. My clients at Newhaven have exposure to natural gas production through Arc Resources, Canadian Natural Resources and Freehold Royalties.
We have more significant natural gas infrastructure exposure through Pembina Pipeline (processing/export), Brookfield Infrastructure (processing/transportation/petrochemical), TC Energy (transport/export), Altagas (processing/export) and Enbridge (processing/transportation/export). Additionally, an active hurricane season knocked out wide swaths of both oil and natural gas production in the United States last month, leaving storage levels at or near the bottom of the five-year range for both commodities. Not surprisingly, the prices of energy commodities have increased dramatically in the last 12 months with crude oil prices up 86%, uranium up 50%, natural gas prices up 116%, propane prices up 159%, coal up 258% and Asian liquefied natural gas prices up a whopping 475%:
Clearly this is more than just a blip and shows the absolute necessity of energy in all its forms for modern society. Newhaven’s broad-based investment in energy and related infrastructure will continue to pay dividends to our portfolios regardless of the market’s direction and will continue to evolve as preferences and technologies change. It is crucial to ignore narratives and watch actions. Right now, the world’s actions are indicating there is an acute shortage of energy during the lowest demand months of the year (September/October), all without full aviation demand due to the ongoing pandemic. The world will continue to decarbonize, but population growth and continued development outside western economies make bold “net zero” targets difficult to achieve on stated timelines.
Canada is well positioned with abundant energy resources and one of the lowest carbon power grids in the world. We are fortunate to have energy security at a time where the lights are flickering elsewhere. We are doubly fortunate to be able to invest in the entire North American energy supply chain within our market, all with attractive dividends.
Ryan Bushell is President and Portfolio Manager of Newhaven Asset Management Inc., where he focuses on meeting the needs of his individual clients. He has been a regular guest on several BNN Bloomberg programs, including Market Call, since 2011 and is a frequent contributor to the Globe and Mail, Toronto Star, Reuters and Bloomberg. He can be reached at rbushell@newhavenam.com
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