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Keystone XL Pipeline Delayed Again: What Companies Will Suffer?

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.

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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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 April 23, 2014, at 3:23 PM, drewder wrote:

    This pipeline is the number one thing that Putin fears. Anything that lowers the global price of oil will cause him to run out of money quickly and put an end to his ambitions in Europe.

  • Report this Comment On April 23, 2014, at 6:45 PM, GETRICHSLOW2 wrote:

    The pipeline will not be built until we get a president who isn't brain dead.

  • Report this Comment On April 24, 2014, at 8:58 AM, Mathman6577 wrote:

    A good analysis of the situation, which states that it is likely that the latest delay was announced to give political cover to some Democrats running for office, was in today's Wall Street Journal:

    Back when he was running for president in 2008, Barack Obama hit upon a vivid way to illustrate just how long the race had dragged on. Babies, he would say, had been born and were “walking and talking” since the campaign got underway.

    As it happens, 2008 was also the year TransCanada Corp. first submitted an application to build the Keystone XL pipeline running from Canada to the Gulf Coast. In the time it’s taken the federal government to review the project, the kids are not only walking and talking — they’re reading and writing.

    Last Friday came the news that the Obama administration had delayed the Keystone application yet again. As the reason, the State Department cited litigation in Nebraska over a law that allowed the pipeline through the state as it carries more than 700,000 barrels of oil a day from Canada to the refineries on the Gulf Coast.

    What this means is the administration likely won’t decide Keystone’s fate until the midterm elections have come and gone.

    That’s by no means a bad outcome for Democrats. In many ways, it is the best possible outcome in a tough political environment. For the Obama administration, making an up-or-down decision before November invites trouble. Approve the pipeline and Mr. Obama alienates the Democratic base: the activists, environmentalists and liberal donors needed to boost turnout and keep the Senate under Democratic control.

    Reject Keystone and he damages the re-election chances of a handful of red-state Democratic senators like Mary Landrieu of Louisiana. Voters might wonder why they need a Landrieu in office if she can’t push Mr. Obama to green-light a project that promises jobs and revenue for her home state.

    By contrast, a delay has little downside. Democratic campaign operatives have made clear they’re pleased that a Keystone ruling isn’t coming any time soon.

    “This allows Democratic incumbents running for the Senate who support Keystone to highlight the differences they have with both the president and the party,” said a national Democratic strategist. “In that sense, it’s a positive for us.”

    Mr. Obama, of course, has a keen interest in the midterms. Last week he took part in an unpublicized meeting at the White House with his pollster, Joel Benenson, former campaign adviser Larry Grisolano and others, according to a person familiar with the meeting. Topics included the midterm elections, this person said.

    More In Keystone XL Pipeline

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    Keystone Delay: Politics at Play or Regulatory Clog?

    The Keystone XL Pipeline Timeline

    Cowboys, Indians, Green Groups Protest Keystone

    Takeaways From the Delay of Keystone XL Pipeline Decision

    The White House has downplayed its own role in the Keystone review process, noting that the State Department is running the review, in keeping with an executive order that gives State a lead role because the pipeline crosses an international border.

    “The president has been consistent in always wanting the process to be conducted on the merits…,” White House spokesman Jay Carney said in a briefing this week.

    When the delay was announced, Republicans accused the White House of playing politics with the decision. But others point to a different issue that often gets lost in the Keystone fight: Government’s ability to settle regulatory matters in timely fashion.

    “I don’t think it surprises anyone that this is a political decision,” said Jason Grumet, president of the Bipartisan Policy Center, a think tank. “I think it raises the question of how good we are at making political decisions.”

    More: The Keystone XL Pipeline Timeline

    Follow @wsjwashington on Twitter.

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