This past Wednesday, I had the pleasure of guest-hosting BNN Bloomberg’s The Street with Roger Petersen, which airs live from the Bellmedia studios in Scarborough – the same place where I used to do Canada AM interviews back in the 1990s. It’s a great show, but my favourite segment is where I get to take calls and emails from viewers on individual securities and sectors. One of the questions this week was on Canadian energy stocks and where I saw them going. There isn’t a lot of time to fully build out a response even on single stocks, let alone a segment that is this significant. I ran through some recent performance metrics and opined that the outlook for the sector was “rock solid”. Indeed, Ally and I have been bullish on Canada’s energy patch for a while, from crude oil to gas to pipelines. Thinking back on the call, however, I think the big story is going to be Canada’s push to become a Liquified Natural Gas (LNG) superpower, not to dominate, but to provide a much-needed stability in a chaotic world.

Let’s start this week with a quick look at how stocks in the patch have performed this year and how they compare with other regions. The S&P/TSX energy sub-index has slipped back from the record highs reached in late March, as crude oil prices have pulled back on repeated Oval Office TACO maneuvering (aka, stumbling). Still, the index was up close to 30% year-to-date on Thursday and is up about 50% from this time last year, as you can see in the chart below.

When we turn on the news or read the publication of choice, the focus is first on the price of crude oil. As we have discussed before, West Texas Intermediate (WTI), which is a light grade of crude produced in the US, tends to trade lower than Brent crude – which is based on North Sea production and is not as “sweet” (higher sulphur count) as WTI. There is another crude oil metric that garnishes less attention in mainstream media and that is West Canada Select (WCS). Yes, the stuff we produce. Up until recently, we have been captive to the U.S. consumer of Canadian output. As much as we can say that WTI is “land-locked”, Canadian oil was worse. Hence, we have had to sell our product at a discount to WTI, and this gap has been as much as around $20/barrel. That gap has started to shrink and WCS prices are benefiting from not being as landlocked. This is because we finally got our act together and built the infrastructure required to bring oil to the western coast for shipment by tanker to places other than the US. Case in point, China now accounts for about 80% of the crude oil shipments from Alberta to the west coast by pipeline. Even before the Iran war, Canadian producers were hitting record high volumes and saw a sizable increase (129%) growth in output going to customers other than the US according to StatCan.

While the theoretical benefits of energy diversification have long been debated in boardrooms, the recent escalation in the Middle East has turned theory into a brutal reality. The systematic targeting of energy hubs across the Persian Gulf has not only erased a significant portion of global spare capacity but has effectively broken the trust of long-term buyers in the region.

Take, for example, Qatar which was dealt a major blow to its QatarEnergy LNG facility in March, causing a production halt and the company is still under force majeure. Storage facilities (Bapco Storage) were hit in Bahrain earlier this month and retaliatory strikes against Iran’s South Pars gas field effectively choked off domestic and export supplies. On the buy side, Pakistan gets 99% of its LNG from Qatar and as a result of the partial shutdown there, it is facing major power load shedding and curtailment of industrial activities. Japan was sourcing more than 90% of its crude oil and LNG from the Middle East and is having to dip into strategic reserves. South Korea runs a close second to Japan, with roughly 80% reliance on fossil fuels that traverse the Strait of Hormuz.  India gets about 50% of its natural gas from the region and even Germany was getting about 7% of its LNG from Qatar this past winter.

As the 'Security Premium' spikes and traditional supply lines remain under fire, the global gaze is shifting. It is no longer just about who has the product; it is about who can deliver them through stable, safe, and sovereign corridors. This is the backdrop against which Canada’s massive infrastructure build-out—from the West Coast to the Arctic—is moving from a domestic project to a global necessity. And Canadian projects have gone from proposed ideas to production engines.

Let’s begin with LNG Canada, situated in Kitimat, BC. Phase 1 is now fully operational, and the facility shipped its first cargo in June of last year. Its capacity is 14 million tonnes per annum (mtpa). To put that in perspective, that’s roughly 1.8 billion cubic feet of natural gas per day. And the two major markets being disrupted by the Iran war, namely Japan and South Korea, are receiving meaningful volumes from LNG Canada.

Neighbouring this facility is Cedar LNG, the world’s first Indigenous-majority-owned LNG facility (Haisla Nation in partnership with Pembina Pipeline). Following a positive final investment decision (FID) in June 2024, the project is currently in its peak construction phase. Interestingly, the floating LNG (FLNG) unit is currently being fabricated in South Korea, with a scheduled arrival in Kitimat in 2028. At “only” 390 million cubic feet of gas per day, it’s a "boutique" scale compared to LNG Canada but has a high-margin and extremely low-carbon due to its electric-drive design.

Head south towards Squamish and you arrive at Woodfibre LNG, which has been designed to be the "cleanest" LNG terminal in the world. Site preparation is nearly complete, and it is on track for operation in 2027. Enbridge holds a 30% stake, providing major-cap stability and the project’s entire capacity (about 276 million cubic feet of gas per day) is already sold out under 15-year offtake agreements with BP. Yes, this is also boutique in relative size, but that output is close to the energy consumption of about a million homes. It will use electric motor drives powered by B.C. Hydro’s renewable grid, resulting in a carbon intensity roughly 95% lower than typical global LNG facilities.

And last, but certainly not least, is Ksi Lisims LNG – a proposed LNG facility which has been recently referred this project to the “Major Projects Office (MPO) for expedited review. Environmental approvals were secured in late 2025 and a final decision is expected later this year (2026). It is a treaty-based partnership between the Nisga’a Nation, Western LNG, and Rockies LNG and once operational, will be Canada’s second-largest LNG facility. It is also better situated for more efficient transport of product to the Asian countries looking to buy.

To be sure, Canada still has a way to go before becoming a real energy “superpower”. God knows, we have been trying this for decades. Ditto for our complacency in having hip-attachment surgery with the US. Still, the developments in the middle east serve to reinforce trends in energy geopolitics that ultimately will benefit Canada’s energy patch. The takeaway for investors is that the 'Canadian discount' is becoming structural history.

We are transitioning from being a captive supplier to a global security provider, which is why Ally and I remain overweight this sector of the market. I like to think of it as three segments – the “toll-takers”, the “drillers” and the “global partners”. The first group is the plumbing (think of Enbridge, TC Energy, and Pembina Pipelines. The drillers are the upstream producers, including Tourmaline Oil, Canadian Natural Resources and ARC Resources. Finally, our global partners will be the likes of Shell (lead operator of LNG Canada) and Mitsubishi Corp (partner in the Kitimat hub. There are tolls being paid in the Strait of Hormuz, but Canada is offering the one thing money can't always buy: a safe path to the shore.

On behalf of the Pyle Wealth Advisory team, have a wonderful week.     

Andrew Pyle