Keystone XL Pipeline Delayed Again: What Companies Will Suffer?

The U.S. government has held off (again) on issuing a permit for the Keystone XL pipeline. Tar sands oil won't flow to the Gulf anytime soon. Many businesses and the economy could be impacted.

Apr 23, 2014 at 11:42AM

The U.S. government has again held off making a decision on the controversial Keystone XL oil pipeline. The State Department announced recently that litigation currently pending in the Nebraska courts is one reason for the delay. It's likely that the issue will not be settled until after national, state, and local elections later this year.

Approval of Phase IV of the Keystone system had been previously delayed a number of times.

The new pipeline, originally proposed in 2008, is basically a replacement for the piece built during the first phase of the project. The newly constructed portion will travel southeast from the tar sand oil-fields near Hardisty, Alberta, Canada, through Montana, where shale oil can be introduced, to Steele City, Nebraska. Two other pipelines completed earlier in the project will then move the crude south through Cushing, Oklahoma, to refineries in Texas. The finished products would be gasoline and diesel.


Source: Wikipedia

Greens don't like it
The section of the 1,179-mile long, 3-foot diameter pipeline that travels though Nebraska has been the contentious part of the entire project, which has been challenged by environmental groups and activists. Heavy lobbying of the Obama administration and Congress and lawsuits filed with various courts appear to have been effective in delaying the permit.

Keystone Protests

Source: Wikipedia

The concern is that the use of "dirty" oil from the tar sands will contribute to climate change, pollute water and land, and harm wildlife in the event of a spill.

However, an environmental impact study performed as part of the approval process indicated that using the addtional oil that flows through the pipeline would not significantly change the current dynamics of the fossil fuel equation, so it is looking more and more like politics is taking over the process.

Losing proposition

TransCanada Corp. (NYSE:TRP), owner of the pipeline system, could suffer as the result of the delay, while other companies, like Union Pacific (NYSE: UNP) and Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), might benefit because of the inaction.

The lack of a timely decision has created a lot of uncertainty for TransCanada. It is difficult to make long-range plans when a centerpiece of the corporate strategy has been delayed for an extended period of time. The hold-up is also likely supressing the stock price, which has been lagging the overall market, so investors are being affected too. 

The lack of an approval also is a jobs killer. Up to 9,000 construction jobs and over 100,000 spin-off positions could be created by the project.

In addition, if the oil is not refined in the U.S. there could be a hit to economic growth. It's possible that the oil companies drilling in the tar sands would move the crude to the Canadian west coast and then ship it to China and elsewhere. The U.S., which is rapidly becoming an energy dynamo, might have to depend more on foreign sources of oil. 

It is a losing proposition for many stakeholders without the Keystone XL in place.

Someone could win 
If there are any winners in the process it could be railroads and railcar manufacturers. Trains might be called upon to move crude oil to the U.S. refiners or even to ocean-going tankers, which would then transport the product to Asia from Canadian ports.

The movement of oil by rail has increased as the result of the energy boom in North Dakota. Lack of pipeline capacity from the Bakken shale region allowed railroads like Union Pacific and BNSF, a unit of Berkshire Hathaway, to grow their businesses. These companies can probably easily adapt to increased demand to ship tar sand oil out of Alberta. 

Foolish conclusion
Yet another delay in the approval of the Keystone XL pipeline can only lead to more uncertainty for TransCanada Corp. and its investors. Expect the uncertainty to last as the politics surrounding the pipeline continue to swirl.

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Mark Morelli has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. 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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