Everything You Need to Know About Keystone XL: Why Pipeline Companies Care

By now, you have probably heard about TransCanada's  (NYSE: TRP  )  Keystone XL pipeline. For even the most casual observer of the energy industry, this project has been the spark that has ignited poltical debates ranging from environmental hazards, emission of greenhouse gasses, and North American energy independence. In last Tuesday's speech on climate change, President Barack Obama made a point to address the fate of the Keystone XL: "Allowing the Keystone XL pipeline to be built requires a finding [from the Department of State] that doing so will be in our nations interest...".

There are clear environmental concerns that several people have regarding the construction of this pipeline, but the story is so much more than that. To help better understand the entire story of the Keystone XL pipeline, we at the Motley Fool want to give investors a better look at what the Keystone XL means for all parties involved. In this part of a series, we will take a look at what the approval or rejection of the pipeline will mean for midstream companies in the U.S. and Canada.

Who will feel an effect?
There are two ways to look at competing pipeline companies: there are the companies that are already transporting heavy oil to the U.S., and there are the companies looking at constructing or expanding pipelines for heavy oils.

Existing pipelines

In total, the current capacity for oil pipelines delivering all types of crude to the U.S. is about 3.4 million barrels per day. These pipelines are all operated by four companies.

Pipeline Owner/Operator Capacity Destination
Express-Platte Spectra Energy (NYSE: SE  )   280,000 bpd Wood River, Ill.
Keystone TransCanada 590,000 bpd Cushing, Okla.
Enbridge and Lakehead System Enbridge (NYSE: ENB  ) and Enbridge Energy Partners (NYSE: EEP  ) 2.5 million bpd Multiple, but 190,000 bpd to Cushing, Okla.

For the existing Canada-U.S. pipelines, there is probably little to no effect whether the pipeline gets built or not. The capacity for these pipelines is already contracted out, and a majority of the oil from these pipelines goes to either the Midwest or Rocky Mountain regions.

What is of probably greater concern is any proposed additional pipeline or expansion project that are in the works. Enbridge is in the process of expanding its mainline capacity through three separate projects: Alberta Clipper, Flanagan South, and Seaway. 

Enbridge Pipeline Projects Capacity Origin to Destination
Alberta Clipper 400,000 bpd expansion of existing infrastructure Hardisty, Alberta to Superior, Wis.
Flanagan South 600,000 bpd Flanagan, Ill. to Cushing, Okla.
Seaway (joint venture with Enterprise Products Partners (NYSE: EPD  )   850,000  Cushing, Okla. to Houston

Since this project is broken up into three separate pieces, the only one that is at risk is the Alberta Clipper project because it crosses the U.S.-Canada border and is therefore subject to approval from the U.S. State Department. Flanagan South is about to start construction, and the Seaway pipeline has already started limited flows to the Gulf Coast. With large amounts of crude coming into Cushing, it's hard to believe that Enbridge and Enterprise Products Partners will struggle to contract out the entire seaway pipeline regardless if the Alberta Clipper project gets approved or not. 

The fate of Keystone XL will have great bearing on the outcome for the Alberta Clipper project as well as any other potential pipeline project that would cross the U.S.-Canada Border.

If Keystone XL gets built
The approval of this pipeline would certainly make it easier for other possible projects to get approved, especially the most current one from Enbridge. Based on projections for Canadian oil sands production, though, it's pretty likely that we will cross this bridge again. By 2020, it's very likely that production of Western Canadian Select and Bakken crude will exceed the additional takeaway capacity that is proposed today.

Then of course there is the actual owner of the pipeline, TransCanada. Current market prices to bring barrel of oil from Hardisty, Alberta, to the Gulf Coast range from $7 to $11. If TransCanada could contract out the entire pipeline for the whole journey, then the pipeline would probably garner somewhere in the range of $2 billion-$3 billion in revenue annually. 

If Keystone XL is rejected
Well, from the American standpoint, it's hard to say at this point. Does one rejection mean that we are more likely to refuse any other pipeline projects? Or is it possible that the need for Canadian oil sands will grow over time and resistance to new pipelines will weaken over time? One thing is for sure, companies that have given thought to building new cross-border pipelines will certainly rethink those plans if this project is rejected.

In the case of TransCanada, it would be a lot of time and effort spent, but there is one small consideration. The Cushing Marketlink part of the project that brings oil from Cushing to the Gulf Coast will be built, so the company will still see some revenue growth from that half of the project. In all likelihood, with Canadian oil sands production increasing, TransCanada would try again to get some other project up and running.

What a Fool believes
Pipelines are critical pieces of the energy puzzle in the U.S. If we ever hope to get anywhere near to some semblance of energy independence, we will need them to make it possible. But, we are discovering that pipelines are not necessarily the only way to transport oil. Check back to Fool.com to learn how the Keystone XL decision could have an impact on the railroad industry.

Don't let your financial future be as uncertain as the outcome for the Keystone XL. The Motley Fool has compiled a special free report outlining how to give your portfolio a worry-free foundation. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.


Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 05, 2013, at 7:44 PM, JeremyAmos wrote:

    Apart from climate change, oil sands pipelines threaten public health and water supplies all over the country. Recently the Pegasus pipeline ruptured in Mayflower, AR. Pegasus travels within a few miles of almost every major lake in AR, running as close as 400.' It also threatens communities in TX, MO, and IL. A lake contaminated with oil sands crude is unusable for 50 years. Arsenic and mercury can't be removed from the bottom of a lake. Exxon and local officials have downplayed the rupture, yet You Tube videos show water pumped from a cove into the main lake. Remember that petroleum induced illness becomes dormant in humans and recurs (Dr Riki Ott's book "The Legacy of the Exxon Valdez Oil Spill"). The Mayflower rupture was a 4" wide, 8' long tear, undoubtedly due to a chemically attacked seem. Certainly, this is not the only bad pipe section of Pegasus, which has 30,000 similar segments.

    The Keystone pipeline being built in East Texas has already had over 50 sections replaced for dented pipe which destroys corrosion prevention coatings, leading to premature ruptures. Trans Canada used the lowest cost, lowest quality pipeline installer. Now lousy pipelines are in the ground in Texas and Oklahoma with poorly

    inspected welds and smaller dents. Trans Canada knew of unsafe conditions on their Bison pipeline and ignored them. As a result, Bison ruptured in its first year of operation.

    Take away two images.

    - Northern Keystone-XL contaminates the Ogallala Aquifer which is only about 10-15 feet deep. Irrigation water for a large fraction of the US farm belt is contaminated with mercury and arsenic (Forever).

    - We get more and more 100,000 barrel oil ruptures. Each rupture is like dumping 100 gasoline tanker trucks near communities and water supplies. Public water supplies become permanently unusable. People in some remote community are not evacuated from an oil sands pipeline disaster and die.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2522514, ~/Articles/ArticleHandler.aspx, 10/21/2014 2:10:44 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement