Two and a half trillion barrels of oil -- that is how much oil is estimated to be contained in Canada's tar sands. 170 billion barrels of this are currently economically recoverable, which makes Alberta tar sands the third largest oil reserves on earth.

Production from these oil sands is expected to quadruple from its current 1.6 million barrels/day (mbd) to 6.2 mbd by 2030, and income investors can cash in on this coming bonanza. How best to achieve this? Oil producers such as Suncor or Enerplus are a good option, but this article focuses on an interesting trend most investors haven't considered -- insufficient pipeline capacity and the increased incidents of oil train accidents. 

Environmental concerns derail pipelines 
Approval for the TransCanada Keystone XL pipeline was put on hold on April 18, 2014, by the State Department pending the outcome of Nebraska litigation. Concerns cited by environmentalists over the risk of oil leaks have dogged the project for years, and recently the expansion of Kinder Morgan Energy Partners' (NYSE: KMP) TransMountain pipeline (which transports oil from Alberta tar sands to west coast of British Columbia for export to Asia and California) has also come under increasing opposition for the same concerns. 

This article will highlight why I believe that Kinder Morgan Energy Partners, as well as its stock-dividend paying alternative Kinder Morgan Management (NYSE: KMR) and general partner Kinder Morgan Inc (NYSE:KMI), are all excellent ways for long-term income investors to profit from the boom in Canada's tar sands and the insufficient supply of pipelines to carry that ocean of oil. 

Leading to more oil train derailments 
According to the Canadian Association of Petroleum Producers, the lack of pipeline supply will result in a 250% increase in oil train shipments by 2016 (from 200,000 bpd to 700,000 bpd). Oil trains are a far more dangerous method of transporting oil, with the US State Department recently stating that the blocking of the Keystone XL pipeline results in 18-30 additional railroad-induced fatalities annually. These fatalities are a result of accidents such as:

  • July 6, 2013: 72 car oil train carrying Bakken oil (from North Dakota) derails in Lac-Megantic, Quebec, spilling 1.5 million gallons of oil and exploding in the heart of downtown, killing 47.
  • November 8, 2013: 20 cars of 90 car oil train (carrying 2.9 million gallons of oil) derails in rural Alabama, 11 explode, flames shoot 300 feet into the air.
  • December 13, 2013: 112 car grain train collides with 106 car oil train in rural North Dakota, 21 cars explode sending flames 100 feet into air.
  • January 20, 2014: Seven out of 101 cars derails from oil train heading from Chicago to Philadelphia, tanker car left hanging off a bridge. 
  • February 3, 2014: Oil train leaks 12,000 gallons of crude along 68 miles of track in Minnesota.
  • February 13, 2014:  Vandergrift Pennsylvania, 21 cars derail into industrial building spilling 3,000-4,000 gallons of oil
  • April 30, 2014: Lynchburg, Virginia an oil train en route to Chicago has 13 out of 105 cars derail with three bursting into flames and spills 50,000 gallons of oil in front of a restaurant on James River waterfront. 
Kinder Morgan is no stranger to bad press with recent attacks by short analysts and Barron's magazine resulting in severe price drops across all three Kinder Morgan securities. 
However, this recent escalation in opposition to Kinder Morgan's pipeline expansion has some analysts asking if the $5.5 billion project is threatened. 
The City of Burnaby, British Columbia, has asked 1,700 questions regarding the emergency response following a 2007 oil spill from the TransMountain pipeline, with Federal authorities requiring answers to 700 questions and Vancouver adding 400 more. In addition, several Native Canadian tribes have voiced opposition to the expansion of the pipeline.
With 34% of Kinder Morgan Energy Partners' backlog devoted to the expansion of the TransMountain pipeline (which would expand capacity from 310,000 bpd to 890,000 bpd), some investors might be concerned that a Keystone XL-like delay might derail Kinder Morgan's distribution growth guidance. 
There are three reasons to believe that Kinder Morgan's TransMountain pipeline will not share the fate as the Keystone XL pipeline.
  • The proposed expansion is along the existing route of the pipeline, (as opposed to a new route like Keystone XL). 
  • The Keystone XL pipeline crossed the U.S./Canadian Border, thus requiring a presidential permit, in addition to Canadian and U.S. State Department permits. The TransMountain pipeline requires less regulatory hurdles, crossing no borders.
  • The above mentioned terrible track record of oil train disasters and the prospect of far more if more pipelines aren't built to handle increasing North American oil supplies. 
Foolish bottom line
With 707,500 of 890,000 barrels/day of capacity signed on to 15 to 20 year contracts from 13 oil sands producers, the eventual (and likely) completion of the TransMountain pipeline expansion will be a major windfall to Kinder Morgan Energy Partners and result in continued distribution growth. Long-term income investors seeking a great way to profit from Canada's immense oil boom should strongly consider the Kinder Morgan family of investments