Northern Pivot

The ATB Take
The Saturday US-Israeli military strikes on Iran (Operations Epic Fury and Roaring Lion), aimed at regime change, have fundamentally rewired global energy flows, at least in the immediate-term. Following immediate retaliatory strikes on UAE and Saudi Arabian infrastructure, the Strait of Hormuz has become an uninsurable shipping zone for the time being. While the Strait is not completely shut to rogue vessels, indiscriminate shooting by Iranian coast guards has severely constrained shipping, skyrocketing insurance and freight rates. This establishes the Port of Vancouver as a critical secure lifeline for Asian refiners. With over >20.5mmbbl/d of liquids and ~82.6mmtpa (~20% of the world's LNG trade) trapped behind the Strait, the market is facing an immediate, acute physical energy deficit, though current crude storage levels will provide some short-term buffer.  

Medium/Heavy & LNG Concentration 
This shortfall is overwhelmingly concentrated in medium/heavy sour crude and LNG, alongside critical downstream products like European jet fuel and Indian LPG. With OPEC+ cautiously holding its ~3.5mmbbl/d of spare capacity in reserve (OPEC’s March 1st 206mbbl/d unwind is largely land-locked due to Strait egress), actual physical supply disruptions occurring in Iraq, and the US not yet announcing SPR releases, global energy markets face the prospect of significant volatility. Investors should brace for a sharp blowout in the WTI-Brent spread and substantial immediate upside to Brent crude; time spreads should also widen and prompt/near-term contracts outperform and increase backwardation.  

Canadian Impact
For Canadian producers, this is a potential historic catalyst, and with panic bidding from Asia, soaring freight/insurance rates, and geographic arbitrage, Canadian heavy oil could become a premium global asset. A combination of improving benchmark pricing (Brent, WTI) and global heavy oil differentials (WCS) would drive incremental near-term FCF generation for Alberta's unhedged heavy oil producers, while the concurrent LNG crisis will support North American natural gas prices higher (though limited given already high utilization rates for US LNG facilities) and incent higher LNG Canada utilization (where possible; recent ship cycle times have supported our improved view of facility performance), lifting the entire TSX energy complex near-term. However, we caution that the situation remains volatile, dynamic, and speculative at this point; many outcomes depend on the length and depth of the conflict, and many unknowns exist about the post-conflict landscape (and a broad range of long-term impacts).  

Complex Situation
While there is temptation to use early anecdotes from the Venezuelan situation, we believe this situation will likely be much more complex in both the short-term and medium/longer-term. Nonetheless, on the global stage, this should reinforce Canada as a more stable jurisdiction with long-duration oil assets that are largely democratized and controlled by investable entities and the corporate governance and transparency that comes along with that, and that Canadian assets can support further multiple expansion through safe-haven status. 

Request the Full Report