The straws that stir the drink

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  By Guest Blogger Doug Rowat

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It’s been a tough year for oil.

The WTI oil price is down 17% y-t-d and is off more than 25% from its January highs. Slow economic growth in the US has certainly hurt pricing (we started the year with economists expecting 2.4% US GDP growth and thus far it’s been about half that), but other factors, particularly oversupply (about 3.5 million b/d globally at the moment), have also created headwinds.

Yet, quietly, one area of the energy sector has been steady: pipelines.

Canadian oil & gas storage and transportation companies

Click to enlarge. Source: Bloomberg, Turner Investments Past results do not guarantee future performance.

I could argue at length about the North American economy’s reliance on oil & gas transportation, but sometimes a picture says a thousand words:

Major Canadian and US pipelines and refineries

Source: Enbridge

It’s rare that you can visually witness how a particular sector is woven into an entire economy, but as the map shows, the North American pipeline network touches just about every major refinery and urban centre across the continent. But the real beauty of the pipeline sector? In addition to being economically essential, it’s also not particularly economically sensitive.

Long-term transportation contracts, extremely high barriers to entry and almost continuous demand make pipelines largely immune from economic slowdowns or short-term oil & gas price fluctuations. This revenue stability is ultimately driven by a lack of alternatives. Transporting oil & gas by pipeline costs US$2-5/bbl. Transporting by truck or rail can be 3-4x more expensive.

It’s no accident that more than 75% of all North American oil is moved via pipeline. And there’s a lot of oil to move around. The US alone consumes more than 20 million b/d.

And investing in traditional oil & gas explorers and producers can be dangerous. To be profitable, skill is needed to accurately forecast the multitude of oil & gas boom-bust cycles and navigate the wild volatility. Most fail.

In the past 15 years, for instance, there have been seven distinct periods where the WTI oil price has declined in excess of 25%, including two periods where the price dropped by more than 70% (the price drop during Covid was particularly tough as prices at one point famously fell into negative territory). That’s a lot of volatility for investors to absorb. But pipelines make energy-sector exposure less painful. Remarkably, the three largest Canadian pipeline companies by market cap have actually had a NEGATIVE correlation to the oil price over the past 15 years:

Pipelines companies’ correlation to WTI oil price past 15 years

Source: Bloomberg, Turner Investments

And let’s not omit the dividends. As the first table above indicates, pipeline yields are attractive, and most pipelines have an incredibly reliable history of dividend increases. While many traditional oil & gas explorers and producers slashed their dividends in 2020 during Covid, Enbridge and TC Energy actually raised their dividends 10% and 8%, respectively. In fact, TC Energy has now increased its dividend for 25 consecutive years and Enbridge for 30 consecutive years.

So, pipelines have business models that make them essential to the North American economy yet also insulated from it. Oil-price down-cycles also mean little to pipeline stocks. Add in attractive yields and growing dividends and you have a highly investable sector.

As always, we would never recommend buying these stocks individually. None of them are bulletproof and each may be prone to company-specific operational problems. Own them within a fully diversified Canadian-market ETF, preferably an ETF that focuses on dividends and therefore overweights pipelines.

Despite what the media continuously suggests, the world doesn’t yet run on AI technology, it runs on oil.

And there’s only one good way to move it: pipelines.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.

Source: https://www.greaterfool.ca/2025/11/08/the-straws-that-stir-the-drink/