We at Hammerstein Capital are very optimistic about Conventional Energy overall and Western Canadian Oil and Gas specifically. This is why we started Hammerstein Capital Canadian Energy Fund. Read our press release.
But why are we so optimistic exactly?
Here are key reasons that guide our approach, presented in simple and transparent way, without any technical jargon:
- The world will need Oil for much longer than initially estimated. Yes, the developed economies are adjusting their Energy mix to grow share of renewables, but the economies outside of OECD are growing their consumption of Oil as the populations are improving their living standards and demand more energy. We see non-OECD Oil demand growing 15-20% into 2030. With Europe and the US consumption declining, this alone will lift Oil demand from 102-103 MBOED to 108 MBOED.
- Oil is used not just for Energy. It is a critical feedstock to produce most of the material used in present day manufacturing, from plastics to beauty products and anything in between. Often there is no economically viable substitute. This demand will stay.
- Natural Gas is an important transition fuel – much cleaner than coal, it can be efficiently used to produce electricity with minimal adjustment of existing power generation facilities using coal. We see NatGas powering more generating facilities in China, India and Asia overall. Western Canada has rich Natural Gas deposits.
- It will cost more in the future to produce Oil and Gas, not less. As easy to recover and transport deposits are depleted, companies will go after remaining, more costly to operate ones. Already break even cost of Oil extraction is mostly in the $60 range for the US basins (Federal Reserve Bank of Dallas survey). Companies will not sell unprofitably.
- Excessively restrictive policies discouraged industry financing, and with a normal lag of 18-20 months of funding to production, this will have tightening effect on supply when demand will start materially growing.
- Political decisions will likely tighten demand further: Venezuela sanctions will remove up to 0.5MBOED from the market in next 6 months. If Iran is seriously restricted from selling their oil, this is another 1-1.5 MBOED of supply gone.
- Canada suffered from extreme left policies for the last decade. Although the newly elected Federal government is still Liberal, they tend to be more pragmatic in their approach to Alberta Energy and are considering infrastructure projects like pipelines. This will help market Alberta energy to the world and benefit prices (which are currently low due to limited export opportunities).
- Late to the game, but Canada finally started its owl LNG game, with first plant fully operating and first shipments to Asia happened in July 2025. Several more tankers on the way to be filled with Canadian LNG. Several more LNG Plants will open by 2030, which will help to lift realized prices for Canadian Gas producers (e.g. domestic realized prices are often in $1-$2 range while Asian markets pay $10 per MBCF of Nat Gas).
- Canada has shortest possible supply route for LNG to lucrative Asian markets: 10 days of straight sailing. US Gulf is twice that and Middle East is 17 days at least (did we mention the route takes you through the Strait of Hormuz?)
- Lastly, Canadian Dollar tends to correlate with Energy prices long term. We are not predicting FX rates here, but this most likely means upside from current CAD lows vs. USD, EUR, CHF etc. Ad Canada being a fundamentally strong G7 Economy, with solid banking system (when was the last time you heard of a Canadian Bank collapsing?) we see bright future here.
These are our Top 10 Reasons to catch the upside of Western Canadian Energy. There is much more to tell.
Interested?
Get in touch with us at Hammerstein Capital