Potential Winners and Losers in Keystone XL Pipeline Talks

Fiat makes a surprise appearance in Keystone XL talks, and sometimes even losers win in the end

Feb 20, 2014 at 1:35PM

There is a lot at stake for investors waiting on the approval of the Keystone XL pipeline. While Mexico and the U.S. discuss political matters such as immigration, the fate of the potential TransCanada (NYSE:TRP) pipeline should be seen as the paramount issue of the negotiations to investors in both the U.S. and Canada.

This proposed pipeline, over 1,100 miles in planned length, would move more than 800,000 barrels of crude oil per day from central Canada to markets in Texas for refining and distribution. 

Unfortunately for the Canadian firm, this set of trade negotiations may mean a continuation of the status quo for TransCanada, as the U.S. could continue to stonewall the project until all recommendations are submitted to the President for his final decision. Depending on his decision, the situation may impact several firms, although the extent of this impact is less known at this time.

Obviously, the price of oil has a lot to gain or lose from these talks. Yet, the oil will be pumped one way or another; the question is more as to how that oil will reach southern markets. For that reason alone, investors should avoid being drawn into observing oil alone and also focus on the potential effects on transportation companies, some of which are already involved in moving the oil pumped from Alberta.

Fool Karl Avard (full disclosure -- my brother) noted in a recent article that, should the pipeline go through and enter production, losers would include Canadian Pacific Railway (NYSE:CP) and Canadian National Railway (NYSE:CNI). Given the relative ease and reduced economic impact, the establishment of the XL pipeline could restrain growth for the firms in the immediate future. While this is true, the losses sustained by these two companies in particular shouldn't be long lasting. 

Some forget that the further development of Canadian oil assets could also hurt Mexico's oil distribution efforts. While reserve levels are currently fluid compared to proven reserves such as Canada's oil sands, Mexico may be sitting on the largest unexplored crude reserve after the Arctic Circle. 

Yet, to explore this region would require a great deal of investment by firms that may not be inclined to expend the resources, especially with a successful implementation of the XL pipeline. Possibly hurting companies already invested in developing Mexican oil assets (including ExxonMobil and Chevron), these losses are still insignificant to the bottom line, though the loss of oil revenues could be felt on a political level.

Avoiding the obvious declaration on who the greatest winner would be, investors should focus on those who benefit from increased (steady) streams of uninterrupted oil to the U.S. economy. With the U.S. looking to focus closer to home, the XL pipeline could make Mexican automobile factories quite valuable. As the U.S. imports a large number of cars from Mexico (and this number is expected to grow further in coming years), Fiat (NASDAQOTH:FIATY) will benefit from increased oil flows as it could lead to increased consumption. 

Despite a perception as being a strictly European company, Fiat wholly owns American subsidiary Dodge Vehicles. Both subsidiary and overriding owner maintain automobile manufacturing facilities outside of Mexico City that are expected to grow further as import numbers to the U.S. are increased.   

Bizarrely enough, the same companies that could lose out on an XL pipeline deal may come out ahead in the end. Recent regulation efforts by Canadian National Railway seeking to increase shipment safety (through the usage of correct transport materials) have become somewhat expensive. The utilization of the pipeline as a primary means of oil transfer would remove the risk of oil trains derailing as happened last July in Lac-Megantic, Canada. 

One could further go into the common benefits such as job creation for both Canadian and U.S. construction firms, but the major question in regards to the pipeline is not "who wins or loses" but instead "why isn't this being done already"? When even potential losers come out ahead, the only thing standing in the way of the TransCanada pipeline is politics.

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Kurt Avard has no position in any stocks mentioned. The Motley Fool recommends Canadian National Railway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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