The receiving platform of a natural gas pipeline terminus in Kitimat, B.C. Gas has been gaining attention because of increased demand from technology companies and as a bridge fuel to alternative energy.DARRYL DYCK/The Canadian Press
Natural gas is getting more love from investors amid growing global demand and slumping crude oil prices.
West Texas Intermediate oil futures have tumbled to about US$65 a barrel from US$80 in January, and some energy fund managers now have bigger bets on gas and pipeline stocks as they wait for an oil rebound and more takeovers in Canada’s energy patch.
Natural gas has been gaining attention because of increased demand from technology companies, artificial intelligence (AI) data centres, and as a bridge fuel to alternative energy sources such as solar and wind.
“And in a world aiming for energy security, a lot of countries are looking for more natural gas,” says David Szybunka, senior portfolio manager and managing director, energy team, at Canoe Financial LP in Calgary.
“Our fund is now 45 per cent in natural gas equities, but it was almost 60 per cent in gas and power utilities last summer,” says Mr. Szybunka, who manages Canoe Energy Portfolio Class fund.
That move last year was a contrarian bet when the average price of the commodity in North America fell to a 20-year low, while oil traded at about US$75 a barrel, he says.
His fund’s U.S. natural gas names include EQT Corp. EQT-N, Expand Energy Corp. EXE-Q and Range Resources Corp. RRC-N.
In terms of Canadian stocks, the fund holds Tourmaline Oil Corp. TOU-T, Peyto Exploration & Development Corp. PEY-T, Advantage Energy Ltd. AAV-T and Topaz Energy Corp. TPZ-T, a royalty play.
“Our U.S. gas equities have done better, but at some point, the Canadian ones will play in a big way,” he says.
Oil stocks, however, have tumbled on worries about slowing global growth because of U.S. President Donald Trump’s tariffs.
And OPEC+, which includes the Organization of Petroleum Exporting Countries and other allies, has rolled back its voluntary production cuts.
It agreed to hike oil output in July for the third consecutive month to punish the group’s overproducers and win back market share.
OPEC+ is trying to grab share from U.S. oil shale producers and higher-cost regions globally that will see production stall or decline amid a falling commodity price, Mr. Szybunka says.
Although he doesn’t have an oil price forecast, he has boosted exposure to beaten-up Canadian mid-cap oil stocks to 30 per cent of his fund from 12 per cent last summer.
Strathcona Resources Ltd.’s SCR-T recent hostile bid for MEG Energy Corp. MEG-T, an oil sands producer, indicates that “some oil assets are mispriced” in the energy patch, he says.
Besides MEG Energy, his oil stocks include Athabasca Oil Corp. ATH-T as well as Headwater Exploration Inc. HWX-T and Tamarack Valley Energy Ltd. TVE-T in Alberta’s prolific Clearwater oil play.
In 2001, when valuations between Canadian large-cap oil stocks and the intermediates and juniors got as wide as they are now, it sparked many mergers and acquisitions (M&A), Mr. Szybunka says. “We believe in that playbook.”
Eric Nuttall, partner and senior portfolio manager with Ninepoint Partners LP in Toronto, is very bullish on natural gas stocks because he expects more headwinds for oil.
Once the summer driving season is over and air-conditioning needs decline, that will put pressure on the oil price as inventories build, says Mr. Nuttall, who oversees Ninepoint Energy Fund.
“I think oil will trade between US$50 and US$60 a barrel for roughly the next year,” as demand growth moderates, he says.
Ninepoint Energy Fund has had a 75-per-cent weighting in natural gas stocks since February. Besides owning EQT and Expand Energy, Canadian holdings include Arc Resources Ltd. ARX-T, NuVista Energy Ltd. NVA-T and Peyto.
This sector is growing more attractive because U.S. liquefied natural gas (LNG) exports are increasing as global demand rises, he says. And LNG Canada will begin its first exports soon, which should shrink the discount that Alberta gas gets relative to the U.S. Henry Hub benchmark, he adds.
Gas prices fluctuate with weather conditions. Natural gas futures on the New York Mercantile Exchange trade at about US$3.62 per million British thermal units (BTU), off from US$4.50 BTU in March.
However, Mr. Nuttall expects to be more upbeat on oil in the second half of 2026 when OPEC+ spare production capacity should be more normal, and U.S. shale production will be in decline or plateauing.
His only oil plays include Athabasca Oil, Tamarack Valley Energy and MEG Energy. However, he does not plan to tender his MEG shares to Strathcona’s offer despite an almost 10-per-cent premium to MEG’s May 15 closing price.
“The real money to be made is through the compounding of meaningful share buybacks over time,” Mr. Nuttall argues.
Still, he expects more M&A activity in Canada, adding that U.S. shale oil producers could also look north as they face slower growth in a lower-commodity-price environment.
Daniel Greenspan, senior analyst and resource team director at CIBC Asset Management Inc. in Toronto, has also become more cautious on oil, saying he expects it will trade between US$55 and US$65 a barrel this year, barring an unforeseen geopolitical shock.
“Over the past six months, we were shifting from oil to more pipeline stocks and natural gas stocks,” says Mr. Greenspan, who co-manages CIBC Energy Fund.
The pipeline names, which include Enbridge Inc. ENB-T and TC Energy Corp. TRP-T, make up about 25 per cent of the fund, he says. These two pipeline giants “are pretty steady, safe businesses with good dividend yields.”
The natural gas stocks, which make up about 15 per cent of his fund, include names such as Tourmaline and Arc Resources.
The gas sector has “good demand tailwinds,” he says. “We see more potential LNG capacity to be added in the medium to longer term across North America.”
LNG Canada is considering a phase two expansion, while Pembina Pipeline Corp. PPL-T and the Haisla Nation are involved in the Cedar LNG project in Kitimat, B.C., he notes.
Mr. Greenspan says CIBC Energy Fund has exposure to oil, but mainly in large-cap, higher-quality companies such as Canadian Natural Resources Ltd. CNQ-T and Suncor Energy Inc. SU-T.
Because there has been little investment in organic growth from oil companies in recent years, “I think we will continue to see a lot of consolidation in the Canadian industry,” he says.
Energy firms haven’t invested in projects to bring more barrels into the market, he adds. “They spent the past five years fixing balance sheets, and the focus has been on dividends and buybacks.”