Safety stocks perform well as energy hope rises

Matthew Weekes of iA Securities notes energy benchmarks finished higher in mid-May. Concerns over global economic growth, a degree of recovery in Russian oil output, and easing of sanctions against Venezuela by the U.S. were outweighed by a drawdown in U.S. stocks, hopes for pandemic restrictions easing in China, and continued talks for the European Union (EU) to ban Russian oil imports.

energy

EU unveiled details on a 300-billion euro energy plan

The EU unveiled details on a 300-billion euro plan known as REPowerEU to end its dependence on Russian energy while accelerating the transition to low-carbon energy. Goals include sanctions against Russian oil and coal and a pivot from Russian gas, increased renewable capacity and LNG imports, and increased energy efficiency.

As previously mentioned, the EU’s plans to reduce dependency on Russian energy and accelerate decarbonization include increased and diversified LNG (liquefied natural gas) imports. This should reinforce the export demand pull for North American gas, providing organic growth opportunities for pipeline companies.

Additionally, we would view faster permitting and accelerated penetration of wind and solar resources in Europe as catalysts for development opportunities within Enbridge Inc.‘s (TSX—ENB; NYSE—ENB) European offshore wind business.

Pushing MVP (Mountain Valley pipeline) onto the field

Alta Gas Ltd.’s (TSX—ALA) Mountain Valley pipeline (MVP) partnership petitioned to have legal challenges against the pipeline assigned to a random panel of the U.S. Fourth Circuit of Appeals, as opposed to the same three judges who have presided over numerous unfavourable rulings for the pipeline in the past.

The project remains mostly complete but has faced regulatory delays, with the latest targeted in-service date set for the second half of 2023.

Another record production year

The U.S. Energy Information administration (EIA) projects another record for production in the Permian in June. Despite 2022 first-quarter production missing our forecast, we believe we will see Freehold Royalties Ltd.‘s (TSX—FRU) U.S. royalty production increase as the year progresses.

Matthew Weekes is an equity analyst for iA Securities in Calgary.

This is an edited version of an article that was originally published for subscribers in the June 17, 2022 issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

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