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 political debates ranging from environmental hazards, emission of greenhouse gasses, and North American energy independence. In his recent speech on climate change, President Barack Obama made a point to speak about Keystone XL and what it means for the U.S
There are clear environmental concerns 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, we will take a look at some of the countries other than the U.S. and Canada that have a marketed interest in the outcome of the Keystone XL.
Getting squeezed out
Over the past couple of years, the U.S. has been reducing its oil imports. Rather than shaving a little from every place we previously did business, we have actually consolidated our imports. Now we import over 60% of our oil from four countries: Canada, Saudi Arabia, Venezuela, and Mexico. It's not happenstance that these countries have remained the sources of our primary oil imports, either. Aside from the geographic benefits of importing from Canada, all four countries are the primary sources for heavy oil around the world, a product that has been very difficult to find in the U.S.
With Keystone XL potentially delivering 830,000 barrels per day to the Gulf of Mexico, and Enbridge's (NYSE: ENB ) pipeline expansions adding another potential 400,000 barrels per day, the piped oil would essentially replace the more expensive heavy crudes that we are receiving from Saudi Arabia, Venezuela, and Mexico. These three countries would most likely see their shares of crude exports to the U.S. significantly diminish.
For these three countries, a lot is on the line. While the total share of oil from Mexico and Venezuela represents 7% and 8% of total U.S. imports, respectively, the U.S. represents 40% of oil exports for Venezuela and 85% of oil exports for Mexico. Although Saudi Arabia is highly dependent upon oil revenue to support the kingdom, it also has the luxury of selling its products to other nations just as easily as it does to the U.S.
If Keystone XL gets built
Not only would Keystone XL likely reduce imports from both Venezuela and Mexico, but the price for their oil delivered to the U.S. could drop as well because refiners would have more options in choosing their crude sources. This could put a big dent in these countries' economies. For example, Venezuelan oil exports represent 33% of the country's GDP. It is likely that if the U.S. cuts its shipments of Orinoco belt heavy, the country will need to find other demand centers.
Of all the countries, though, Mexico has the most to lose, not only because so much of its oil is sent to the U.S., but also because it does not have the same partnerships with Gulf Coast refiners that Saudi Arabia and Venezuela do. Saudi Arabia's national oil company, Aramco, has a 50/50 joint venture with Royal Dutch Shell (NYSE: RDS-A ) for Motiva Enterprises. Also, Venezuela's national oil company, known as PDVSA, wholly owns the refining and retail business Citgo.
|Company||Owners||Total Gulf Coast Refining Capacity (Mbpd)|
|Motiva Enterprises||Saudi Aramco (50%) and Royal Dutch Shell||1,069|
|Citgo||Petróleos de Venezuela (100%)||591|
|Deer Park Refining Limited Partnership||Royal Dutch Shell (50%) and Petróleos Mexicanos (50%)||327|
These partnerships could be crucial connections with the U.S. Gulf Coast and could help these countries maintain a certain amount of exports to the U.S. as Canadian crudes look to supplant them.
If Keystone XL is rejected
Other than a big sigh of relief from these countries, it is very likely that business as usual will continue for the Gulf Coast regarding refinery operations and import sources. Another thing to consider, though, is that both Venezuela's and Mexico's national oil companies have struggled to grow production in the past couple years. If this trend were to continue, it would more than likely mean prices for these types of crude would climb even higher, making the incentive to build a Keystone XL-type pipeline even greater.
What a Fool believes
Looking back on all the different aspects of the Keystone XL pipeline, there is much at stake for companies across the oil industry. For the U.S. and Canada, the upside benefits of the project being built are great, but the downside of it not being built is not an industry-killer like some claim it to be. Though, for certain countries the threat of losing an even greater amount of business from the U.S. could result in not only a need to find new customers, but also in the prices for their crude products dropping below what they once were.
This multi-part investigation into the Keystone XL is not intended to convince that it should or should not be built. Instead, I hope that the information presented gives the least biased view possible and offers every angle of the project it's fair assessment so that the reader may decide. If you missed any previous part of this series, be sure to check back here at Fool.com for what the late, great Paul Harvey called "the rest of the story".
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