A few pipeline companies are in a race to be the first to receive the necessary project approvals before jams Hardisty and Edmonton, Alberta are unclogged. The economic benefits from these projects have the potential to boost the global economy. Unfortunately, the U.S. is making it hard to move the crude south of the Canadian border, with endless studies and regulatory processes holding up progress.
What does this mean for investors? Well, if the crude can't be moved to the U.S., it will be moved across Canada to reach other markets. Pipeline companies still have to build infrastructure to take advantage of the opportunity, and investing in these companies could be the best way to play these developments.
Canadian oil bypassing U.S. markets?
TransCanada's (NYSE: TRP ) is still awaiting approval for its controversial Keystone XL Pipeline project. Environmental studies have confirmed that the necessary safety regulations will be in place, suggesting a negligible impact on the environment, and the pipeline has been rerouted to avoid crossing a sensitive area, the Ogallala Aquifer in Nebraska. Nonetheless, the project's future remains uncertain.
Keystone XL, a proposed 1,179-mile, 36-inch-diameter pipeline, would connect Hardisty to Steele City, Nebraska. The pipeline would move 830,000 Bbls/d, adding more than 48,000 American jobs per year and about $9 billion annually in potential U.S. exports.
However, with the U.S. administration's rebuttal to grant such a project, Canadian companies have to find alternatives. In any event, if Americans can't get the Canadian crude, new markets will be reached to profit from it. Enbridge (NYSE: ENB ) , seeing an opportunity while TransCanada was struggling with the approval of Keystone XL, considered reversing the flow of its Eastern Canadian Refinery Access line 9.
Line 9 is an existing 30-inch diameter pipeline with a capacity of approximately 240,000 Bbls/d, extending from Sarnia, Ontario, to Montreal, Quebec. Originally flowing eastward, the pipeline was reversed in 1998 as foreign oil from the Middle East became more affordable. Therefore, reversing the flow again is making sense because Canadian oil is more affordable than foreign oil and it would help to de-bottleneck the hubs in Alberta, providing access to eastern provinces of Quebec and New Brunswick.
However, during that time, TransCanada looked for alternatives as well and came up with a new project, the Energy East Pipeline. The 2,796-mile pipeline would move 1.1 Mbbls/d from Alberta to eastern refineries, notably in Montreal.
Such a project would be beneficial for Canadians as $35 billion in gross domestic product over 40 years would be added, including over 10,000 jobs and more than $10 billion in revenue from taxes.
Notably, another company is quietly proposing a project that would move the crude from Strathcona County, Alberta to the west coast, in Burnaby, British Columbia. From there, the oil would be shipped to emerging markets such as China and India, generating a substantial profit in the process. The largest midstream and the third largest energy company in North America, Kinder Morgan (NYSE: KMI ) proposed its Trans Mountain Pipeline, an expansion of its current 714-mile pipeline that would create a twinned pipeline, increasing the capacity from 300,000 Bbls/d to 890,000 Bbls/d. Benefits would be about 60,800 Canadian jobs and over $1 billion in revenue from taxes.
My Foolish take
Denial of Keystone XL would have a negative impact over the U.S. economy, an economy that sorely needs a boost. Still, Canadian hubs are jammed and crude oil needs to go somewhere. Therefore, if Keystone XL gets rejected, there are some interesting alternatives on the table.
TransCanada has more than 60 years of experience, and several other projects are under way. Enbridge's extensive pipeline network is an asset, and its line 9 reversal could accommodate eastern Canadian markets. Kinder's Trans Mountain expansion project for its potential to provide exporting companies cheap oil for emerging markets definitely grants Kinder an edge over its competitors.
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