Please ensure Javascript is enabled for purposes of website accessibility

How a Donald Trump Presidency Could Affect Pipeline Stocks

By Matthew DiLallo – Nov 9, 2016 at 4:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The votes have been cast and counted. America has chosen a new leader. Now, it’s time to look at what a Trump presidency will mean for the future of America’s pipeline industry.

President-elect Donald Trump ran on an America-first platform. As such, his vision when it comes to energy is that the country will become energy independent. That means unleashing the nation's vast shale resources to push out foreign oil supplies, especially from nations hostile to America's interest. To do so, America will need a lot more pipelines to move these supplies from resource basins to market centers, which suggests tremendous growth opportunities for pipeline stocks.

Images source: Getty Images.

The battleground

Over the past several years, it has become increasingly difficult for pipeline companies to build interstate oil and gas pipelines. TransCanada's (TRP 0.67%) Keystone XL became a major battleground after environmental activists fought to stop the pipeline. Their opposition stemmed from a belief that the pipeline could rupture and cause environmental damage as well as increase oil output from the Canadian oil sands, which would negatively impact the environment because that oil has a higher carbon footprint than conventional sources. Those opposed to the pipeline won that battle after President Obama rejected the TransCanada pipeline project late last year, ending a seven-year debate.

That win for the opposition fueled more attempts to halt proposed pipelines across the U.S. and Canada. For example, in Canada, pipeline giants TransCanada, Kinder Morgan (KMI 1.34%), and Enbridge (ENB 0.14%) each have a stalled pipeline project due to growing opposition. Meanwhile, in the U.S., Kinder Morgan faced opposition in its attempts to build a natural gas pipeline in the northeast as well as a refined products pipeline in the southeast, causing it to give up on both projects. More recently, Energy Transfer Partners (ETP) has had construction on its Dakota Access Pipeline halted because of increasing opposition, including from Senator Bernie Sanders. Unlike the other pipelines, Energy Transfer's was already approved and had expected to be in service by the end of this year.

Image source: Getty Images.

Opening up the floodgates

Given Trump's America-first energy policy, it is much more likely that projects like Dakota Access cross the finish line, which is why Energy Transfer's stock price surged double-digits on the day after the election. The project's express purpose is to move oil from the oil-rich Bakken shale of North Dakota to the country's refining hub along the Gulf Coast. In fact, it is now increasingly more likely that Energy Transfer could expand that pipeline's capacity from its current size of 470,000 barrels per day up to 570,000 barrels per day because the odds have increased that Bakken production will rise in the future. That could fuel more cash could flow to its investors in the form of dividends in the years ahead. 

In addition to that, Trump has openly said that he favors the construction of TransCanada's Keystone XL pipeline and would like the company to reapply. While that would seem to contradict his America-first energy policy, that is not necessarily the case. First, Keystone XL would further reduce America's dependence on oil from OPEC and nations that have hostile interests to those of the U.S. by boosting our reliance on our friendly neighbor to the north. Further, this is not just an oil sands pipeline; it would also transport up to 100,000 barrels of Bakken crude per day. Finally, according to the U.S. State Department, the Keystone XL would create more than 42,000 jobs, including those directly related to construction as well as those as a result of its economic stimulus, which fits within Trump's plan to bring jobs back to the country.

In addition to those oil pipelines, Trump's plan would encourage the use of natural gas to reduce emissions, cut energy prices, and increase economic output. This policy means the country would need additional natural gas infrastructure, which opens up more growth opportunities for natural gas pipeline-focused companies like Kinder Morgan and Williams Companies (WMB 0.67%) as well as Enbridge and TransCanada, which recently acquired U.S.-focused natural gas pipeline businesses. Again, these growth projects could enable those pipeline companies to increase their payouts to investors once they go into service. 

Investor takeaway

Clearly, Trump's ascendance to the White House is a good thing for pipeline companies. His America-first energy policy could push stalled pipeline projects over the finish line while opening up new doors to build additional oil and gas pipeline projects. The resulting growth could lead to higher dividend payments for pipeline investors over the next several years.

Matt DiLallo owns shares of Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan and long January 2018 $30 calls on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.