Wildfires burning in Canada’s oil-producing region are prompting investors to examine the potential impact to midstream companies.
There were over 24 out of control wildfires in Alberta as of Wednesday. Notably, a significant 470,000 barrels per day of oil production is located within 20 kilometers of these large (>10 hectares) out of control wildfires, according to Bloomberg.
There are 210 active fires throughout Canada as of Thursday, according to the country’s interagency fire center. The most fires are currently in the British Columbia province, followed by Alberta. Significantly, Alberta produces much of Canada’s crude oil. Many midstream companies operate in this region as well.
The ongoing wildfires in Alberta are causing concerns about oil supply disruptions, as the country’s daily crude production had been curtailed by about 7% as of Tuesday, Reuters reported. Some producers had evacuated non-essential workers and temporarily curtailed production, but the situation is still evolving.
Second-quarter midstream volumes could be impacted if midstream companies and producers temporarily shut down operations due to wildfires. However, further investigation is necessary to assess the potential impact. Factors such as the duration of the fires, extent of infrastructure damage, and effectiveness of response measures will influence the overall outcome. Rain earlier this week has reportedly allowed some producers to restore curtailed volumes, per Bloomberg.
Given the developing situation, it’s worth considering the parallels to the June 2023 wildfires. During that period, despite some temporary shutdowns and operational challenges, the midstream sector did not experience a significantly pronounced impact.
See more: Canadian Midstream Companies Impacted by Wildfires
At the time, midstream companies such as TC Energy (TRP), Keyera Corporation (KEY), and Pembina Pipeline Corporation (PPL) each temporarily halted operations due to wildfires. In each example, the company did not experience any significant impact and was able to restart operations.
Canadian Midstream Exposure
Canadian midstream companies can be of interest to investors given their strong dividend track records and defensive qualities. Three Canadian midstream names — South Bow Corp, Enbridge, and TC Energy — have year-to-date total returns above 10%, while the S&P 500 is slightly positive and the broader U.S. energy sector is negative.
Investors can gain exposure to Canadian midstream companies through the Alerian Energy Infrastructure ETF (ENFR ), which is based on the Alerian Midstream Energy Select Index (AMEI). The fund is a composite of North American midstream energy infrastructure companies. It includes C-corps and MLPs, and companies engaged in the pipeline transportation, storage, and processing of energy commodities.
ENFR is the lowest-cost ETF in the midstream category and is up 4.4% year to date through June 5, handily outpacing the S&P 500 and the Energy Select Sector SPDR Fund (XLE).
For more news, information, and analysis, visit the Energy Infrastructure Channel.
VettaFi LLC (“VettaFi”) is the index provider for ENFR, for which it receives an index licensing fee. However, ENFR is not issued, sponsored, endorsed or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing or trading of ENFR.
