The shock to commodities from Russian President Vladimir Putin's invasion of Ukraine will speed up global efforts to abandon fossil fuels, and cement Canada's role as a stable source of oil and gas in what's expected to be a decades-long energy transition. That's the view from Horizons ETFs Management Canada, one of the country's top exchange-traded fund providers with nearly $22 billion in assets under management.
From global oil benchmarks to metals used in electric vehicle batteries, the Russia-Ukraine conflict and related sanctions from Western powers have caused massive price increases across the commodities complex. As a result, Horizons says it's seen an uptick in interest in both its oil and gas funds, as well as those tracking uranium, lithium and hydrogen.
"What these high natural gas and oil prices in Europe are really demonstrating is that Europe can't be dependent on Russia for its energy needs," Nicolas Piquard, vice-president, portfolio manager and options strategist with Horizons, said in an interview. "What this will do is really accelerate the move into renewables."
Toronto-based Horizons manages 105 ETFs on major Canadian stock exchanges. Piquard says the firm had only a small direct exposure to Russia through its emerging markets and currency ETFs prior to the country's assault on Ukraine.
West Texas Intermediate (CL=F) and European Brent crude futures (BZ=F) saw slight declines on Thursday, following a meteoric rise in response to U.S. and European sanctions on Russian oil announced on Tuesday.
While surging oil prices have added to the already strong performance of oil and gas equities this year, expectations that European nations will prioritize cleaner sources of energy to replace imported Russian fossil fuels have lifted clean energy stocks from a recent slump.
The iShares Global Clean Energy ETF (ICLN), a US$5.6 billion basket of clean energy stocks, has climbed more than 13 per cent since Feb. 24, the day Russia invaded Ukraine. Horizons' hydrogen and uranium-focused ETFs have climbed more than 20 per cent in that time.
"Maybe high oil prices are exactly what we need," Piquard said. "It will make all sorts of energies more economic, like solar, wind, and nuclear."
Ryan Bushell, president and portfolio manager at Newhaven Asset Management, says renewable energy shares took on a temporary state of euphoria on the heels of U.S. President Joe Biden's 2020 election win. At the same time, he notes major institutional investors and massive pension funds were publicly touting ESG-friendly investments, divesting from oil and gas.
"There were a whole bunch of factors that pushed that agenda for a while," he said. "Now, the fast money has gone from playing renewable power to good old fashioned oil and gas."
Like Piquard, Bushell says the run in commodity prices makes green energy more attractive because the economics are now more competitive.
"You're seeing the stocks really start to move," said Bushell, who owns shares of clean energy producers Northland Power (NPI.TO), Algonquin Power & Utilities (AQN.TO) and Brookfield Renewable Partners (BEP-UN.TO)(BEP) for clients, as well as a host of fossil fuel stocks.
It places Canada in a very, very enviable position. I believe we will find ways to get that oil to markets that won’t buy from places like Russia.Nicolas Piquard, vice-president, portfolio manager and options strategist with Horizons Horizons ETFs Management Canada
The prospect of Russian oil being ostracized by a growing number of importing nations raises questions about Canada's role in shoring up global supply. Canada is the world's fourth-largest oil producer, with output of more than five million barrels per day, and the biggest foreign supplier of crude to the U.S.
Alberta Premier Jason Kenney recently urged the United States to revive the Keystone XL pipeline project, which President Biden effectively killed on his first day in office due to environmental concerns. TC Energy (TRP.TO)(TRP), the pipeline's owner, has said the project will not move forward.
Mark Little, chief executive officer of Canadian energy giant Suncor (SU.TO)(SU), said in an interview with CBC News earlier this week that Canada's oilpatch has the capacity to move additional crude into the U.S. However, Natural Resources Minister Jonathan Wilkinson has downplayed Canada's ability to quickly ramp up exports. Canada has limited pipeline capacity running south, and only one export pipeline to its coast, the Trans Mountain line in British Columbia.
Piquard says he's "frustrated" by the Biden administration's willingness to engage in talks with Venezuela to potentially ease U.S. sanctions and increase oil imports from the dictator-led country, rather than reach out to Canada.
With the global transition from fossil fuels still in the early innings of what experts suggest could be a decades-long shift, he's confident that Canadian oil and gas will see rising demand from beyond North America in the future.
"Canada is one of the few countries that's a true democracy, and aligned with the Western world, that has high oil and gas reserves, and an ability to increase production," Piquard said. "It places Canada in a very, very enviable position. I believe we will find ways to get that oil to markets that won't buy from places like Russia."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.