The Keystone Delay Won't Stop These Canadian Oil Sands Stocks

Email

I'm not a knee-jerk hater of the Obama administration.

But the President's decision to reject the Keystone pipeline was one of his worst.

Aside from creating jobs, the pipeline would have decisively swung U.S. energy supplies more toward domestic sources and those of our friendly neighbor Canada.

Granted, the pipeline wouldn't create energy independence but it would mean importing less oil from the Middle East.

It is the kind of switch that could help save the U.S. large amounts of blood and treasure in the future.

Because in practice, our dependence on Middle Eastern oil forces us to incur huge foreign costs – after all, we just finished paying $800 billion for the Iraq war. As you know, that is just a drop in a much larger bucket.

Add in the human losses and the costs are incalculable.

In this case, caring less about what goes on in the Middle East – other than ensuring the safety of our ally Israel – would save us all those costs, and get us that much closer to balancing the damn Federal budget.

So let's just say shelving the Keystone pipeline wasn't exactly the president's finest hour.

Bullish on Canadian Oil Sands Stocks

However, while the Keystone Pipeline continues to twist in the wind, investors shouldn't ignore the Canadian energy sector – especially the Athabasca tar sands.

Because with oil prices on the rise, these Canadian resource plays are likely to offer investors serious returns.

Here's why: oil prices are headed higher.

In fact, Fed chairman Ben Bernanke's recent promise that U.S. interest rates will remain near zero until the end of 2014 has given a huge boost to commodity and energy prices.

What's more, the $600 billion injection into EU banks and the promise of another $600 billion this month just adds more fuel to the inflationary flames.

Eventually, oil prices will get so high that they will cause a recession all by themselves, just like they did in 2008. But remember, that happened at $147 per barrel, so we've still got quite a way to go. This time oil could get closer to $200 per barrel.

That's bullish for places like the Athabasca tar sands.

On the flip side, if oil prices were low, you would need to look at companies exploiting areas with the lowest extraction costs like the Middle East or Nigeria. At lower oil prices, the temptation for the local governments to play games with foreign oil companies would be modest, so if you had access to cheap supplies you'd do very well.

In this scenario, high-cost supplies such as those in the U.S. oil shale and Canadian tar sands would struggle.

However, in today's environment of high oil prices, political stability is much more important than cost. The higher the price, the more low-cost supplies in unstable areas are subject to expropriation by the local politicians.

Conversely high-cost supplies in stable areas are highly profitable, and would attract most of the new investment.

How to Invest in the Athabasca Tar Sands

The Keystone pipeline decision is certainly a pity for the United States – though it may be reversed after the November elections.

However, it doesn't matter much to the Alberta oil producers.

They already have an alternative project, the $5.5 billion Enbridge pipeline, which will move oil to the Pacific Coast, where it can be shipped to the growth markets of China and East Asia.

So these capacity expansions can be carried out just as fast as the Keystone pipeline, with little or no risk of creating a glut that can't be readily moved to market.

The Athabasca tar sands have estimated reserves of at least 178 billion barrels of oil, but Shell Canada estimates their capacity at 2 trillion barrels, enough to supply the United States for 250 years.

That's why Chinese companies are interested in Canada – they have invested $15 billion in Athabasca tar sands projects over the last two years.

For an overall spread of investments in the Canadian energy business, investors should consider the Claymore/SWM Canadian Energy Income Index ETF (NYSE: ENY). This fund invests in the 34 stocks of the Sustainable Canadian Energy Income index, most of which are not listed in New York.

It's an easy way to invest in companies listed on the Toronto Exchange – especially if your brokerage doesn't deal in foreign exchanges.

The index includes tar sands, conventional oil, and uranium mining, which is another attractive sector that Canada dominates.

The ETF has a value of $114 million and an expense ratio of a moderate 0.7%. It also pays an attractive dividend yield of 2.83%.

However, the best major tar sands player is Suncor Energy (NYSE: SU), which is currently more attractively priced than its big competitors, trading at 10.6 times 2012 earnings and 1.44 times net asset value, with a dividend yield of 1.3%.

Suncor just announced its fourth quarter earnings, with earnings per share (EPS) up 10% from 2010 and operating earnings up 75%, primarily due to higher oil prices. For the year, Suncor's earnings of $2.74 per share were up 12% on the previous year.

Given its growth and leverage to oil prices, Suncor is very attractively valued.

So while the president seems intent on turning his back to our neighbors to the North, investors shouldn't follow his lead.

Canadian oil sands stocks are undoubtedly one of the best opportunities on the market.

News and Related Articles:

Join the conversation. Click here to jump to comments…

  1. Bill | February 7, 2012

    Interesting, but I had just finished reading Feb. 1, 2012 edition of the "Energy Advantage" Where "Energy Advantage" says President Obama really had no choice but to say "No" within the time constraints imposed on him because of Statute 526 of the Energy Independence and Security Act, you seem to think that all he had to do was sign the ok. "Energy Advantage"" indicates that eventually the the opinion that the Keystone Pipeline will eventually be approved by Obama (or his successor. Congress has to get their act together to make the changes in the law.

    • Eric Tyrrell | February 7, 2012

      Why did he say he needed to do another impact study?

    • publius | February 7, 2012

      You misread the article, which also wasn't very well written. The pipeline was exhaustively studied for over two years. There are no real non-political reasons to delay the pipeline. It's only real opposition are 'environmentalists' that oppose everything that raises someone's standard of living under the guise of 'saving the planet.'

      • Michael Taylor | May 16, 2012

        You disgust me. Your views are abhorrent, inhumane and amoral. You are only interested in personal profit and cheap gas. Look at the bigger picture my friend – there won't be a world to live in if we continue to rape the planet. Stop wasting your life for petty profit and acquire some responsibility as a citizen of this planet.

    • LEN KYLE | February 7, 2012

      THERE HAVE ALREADY BEEN TWO ENVIRONMENTAL IMPACT STUDIES DONE OVER THE LAST TWO YEARS….THE FINDINGS OF WHICH BOTH SUPPORTED THE DEVELOPMENT OF THE kEYSTONE PIPELINE. WHAT IS HAPPENING NOW IS PURE POLITICAL POSTURING….MANY OF THESE EXACT SAME CONCERNS WERE EXPRESSED PRIOR TO THE DEVELOPMENT OF THE TRANS-ALASKA PIPELINE. EXPECT TO SEE MORE OF THE SAME WHEN DISCUSSIONS BEGIN REGARDING THE ANWAR AREA IN NORTHERN ALASKA. A POLITICIAN CARES ABOUT THE NEXT ELECTION, A STATESMAN CARES ABOUT THE NEXT GENERATION…..WE NEED MORE STATESMAN

    • Tim | February 18, 2012

      Not real sure of the time constraits, but it isn't Congresses fault that the President doesnt pay attention to Statute or anything else of real consequence. He leads from behind. He needs to have people in Washington who will present to him the correct information necessary for him to make critical and correct decisions. Sometime this year he needs to wake up, pick up the phone and talk to those in Congress to come together and get something done. Hiding behind Hank Reid and the Senate isn't going to work.

  2. Bill Simpson | February 7, 2012

    Excellent article .. another grade 'A" company to consider in investing in Canadian Oil Sands is Cenovous CVE. of NYSE.

  3. Barbara R | February 7, 2012

    I like that you emphasized that if we could wean ourselves off Middle East oil, we could lower our defense budget which counters the higher costs of extracting shale oil and gas. So often it is cited how more expensive it is and we'd be better off importing. What people don't realize is that we are at the whims of foreign governments that could close off the oil (Iran) or use the money from it for terrorist purposes against us. They are no friends of ours. If we paid more to extract oil but stopped importing it, we'd provide jobs here and we could basically ignore what is going on in the Middle East saving money and bringing our troops home and stop this game of trying to be a mediator between Israel and the Arab countries.

    • publius | February 7, 2012

      We buy oil from the cheapest available source. That benefits all American consumers and all American taxpayers. 'Foreign governments' (including the largest foreign sources, Canada and Mexico, not anyone in the Middle East) sell to the highest available bidder. This benefits their citizens (or in the case of corrupt countries, their rulers). This is unlikely to change, because by itself it is in the best interests of both countries, even countries that are enemies.

      However, we should still extract as much 'reasonably priced' energy from our own soil because that will increase the supply, decrease the cost, provide American jobs, provide additional tax revenues, make our enemies weaker (and also make Canada and Mexico weaker), and increase the standard of living in America. The good reasons to NOT extract energy from American soil are . . . . all the reasons I just mentioned as benefits, if you favor a weaker, poorer America.

  4. Roman | February 7, 2012

    What do you think about Canadian Oil and Sand Co. (Cos.to)? Is it a advisabe to invest in this stocki rather than Suncor, which has a much lower dividend?

  5. Terry M. Bowman | February 7, 2012

    With Keystone looking doubtful, why has the spread between WTI and Brent become so divergent? Shouldn't we being seeing the opposite? What gives?

  6. steve | February 7, 2012

    Seems disingenuous to say the president made a mistake and is turning his back on Canada. He's very aware of the energy needs at stake. There were serious reasons for not approving on that date, which he was forced into by the idiots in Congress. We already have "oil at any cost" in the Middle East, Americans shouldn't expect the president to rush into these decisions with eyes closed where we can make good decisions. The State Department needs time to reevaluate the route to avoid more stupid decisions. It will happen, better it be well thought out, not rushed. He did the right thing.

    • ROBERT K. DOYLE | February 14, 2012

      Believe U are incorrect on the "State" Dept. ref. ,,,Should it not be Dept. of the Interior ???

  7. Tony | February 7, 2012

    When an analyst starts of with: "I'm not a knee-jerk hater of the Obama administration.", that's a warning sign that he is about to say thing purely political.

    FACT: Oil is a global commodity that does not respect national boundaries. No matter where the oil transits through, it will end up in a tanker headed for the highest bidder.

    FACT: Refined petroleum products also have a global market and the stuff that comes through the pipeline does not necessarily end up in the domestic market.

    FACT: If China and East Asia countries can get oil from Canada's West Coast pipeline terminal, so can the US. So, the oil is not out of reach because it did not come through the Keystone pipeline.

    I personally wonder why nobody says anything about siting the refineries closer to the production areas. There are obvious advantages to this but I think the issue is being used as a political football being played in the mud. You have to wade in that sticky stuff to play. Americans will do themselves a favor and get a good look at the kind of crude oil we're talking here. The stuff is very viscous and corrosive; the idea of pumping that stuff thousands of miles over land without some initial upgrading sounds like lunacy to me.

    Hey, what do I know? I'm just a lowly chemical engineer who has actually handled the stuff and done quality control work for an oil major.

    Also

  8. Garcol | February 7, 2012

    Good arguments, but not totally defensible.
    "The higher the price, the more low-cost supplies in unstable areas are subject to expropriation by the local politicians."

    In fact, the major instabilities have occurred as the result of American (or British) interventions.

    "Granted, the pipeline wouldn't create energy independence but it would mean importing less oil from the Middle East. It is the kind of switch that could help save the U.S. large amounts of blood and treasure in the future."

    Two other switches would achieve the same or BETTER economies – mandated conservation and support of SERIOUS alternative energy developers. These could reduce or ELIMINATE our dependence on imported oil, but would have the serious drawbacks of requiring some sacrifice at home (eg not driving 1 mile to the market) and reducing the number of O&G mechanisms to make more money.

    If energy independence AND the sacrifice of human life AND the expense of foreign wars are REALLY the issue, why would the less expensive and less disruptive options NOT be undertaken?

  9. Daryl Logan | February 7, 2012

    Keystone approval was always going to have to wait until after the election. So instead of just stalling until the end of the year to approve the project, thus placating his 'green' friends, the Republicans forced Obama to kill Keystone itself to prevent having to veto totally unrelated legislation, to which Keystone approval got attached. So now, it still has to wait until the election is over, and regardless of the results, Keystone gets approved.

    Furthermore, the Enbridge project will have an even tougher time getting approved in Canada than Keystone was having in America. The environmental issues with its route are much more serious.

  10. Malcolm | February 7, 2012

    Interestingly one of the key features of the Keystone XL (the main Keystone pipeline has been in opeartion for a couple of years now) is that it is designed to take shale oil from the Bakken formation to oil refineries in Texas. Not only did Mr. Obama delay Canadian crude oil entering the US market and putting US refineries to work he also stopped producers in his own country from getting their oil to market. The nonsense put out by the US State Department that they did not have time to evaluate the proposal was just so much gas. They have been reveiwing it for over three years. How long do they really need? What I do not think that many Americans understand is that Canada will sell its oil and it is not required to sell it to the United States. There is already active discussion about refining it and selling the derivatives as well as supplying the Eastern provinces with oil through an oil pipeline within Canada. You can be sure that Mr. Harper is talking about Chinese investment and access to Canadian oil right now on his visit to that country. I think our collective feeling in Canada is well we tried but if the US wants to rely on oil from hostile nations then as the man said "go ahead – make my day".
    Malcolm

  11. Dr Ross Grainger | February 8, 2012

    The Canadians don't care about selling oil to the US so much to these days. The Canadian Prime Minister said today that he wanted to 'diversify' so, instead, he selling the oil to China.

    The Chinese government is so happy they are thinking about reducing oil supplies from Iran.

    The Chinese and the Canadians are even thinking about building a pipeline so they can ship the oil direct to China.

    However, I'm not sure Obama will be pleased

  12. David Tarbuck | February 8, 2012

    I am a Canadian who is opposed to the Tar sands oil ads presently extracted and refined; this due to environment and conservation issues.

    However there are ways to separate the goo from the sand in the ground; this separating process is where lies the greatest present waste and pollution.

    To work on this angle is the sensible alternative, particularly for our grandchildren and so on.

  13. steve murphy | February 8, 2012

    Wrong, its not dead just delyed due enviromental issues. Unfortunatly this will be our source of 5 dollar a gallon gasoline. The benefit is jobs. Maybe Obama is saving it for the summer to make his job growth prformance look better closer to election time.

  14. Charlie | February 8, 2012

    Maybe I'm missing something, I fail to see how this reduces our dependence on foreign oil.

    The report that TransCanada published mentioned that with the pipeline, the oil will be sold to China anyhow. It also mentioned that the currently local users of that oil, including US farmers will end up paying more for fuel after the pipleline.

    If that's not confusing enough, look into how a foreign company, TransCanada, is acquiring private US farms through eminent domain, and paying less than market value for it.

  15. Mike | February 9, 2012

    President Obama did not kill the KeystoneXL pipeline. The pipeline route needs to be revised because of it’s threat to water aquifers, that had already been decided. Instead of allowing the the pipeline company to map a new route with State Department review, the Congressional Republicans attached a measure to a tax cut bill to force Obama to approve the pipeline by a February deadline without time for the review process. It would be dumb and irresponsible to approve a new unmapped pipeline without the State Department review process which, by-the-way, is required by law. TransCanada Corp. can reapply with the new route and the State Department will have the time to review the new route. The process will take place with the new prudent route and the required review. This pipeline will not change the price we pay for oil here in the U.S. because those prices are determined on the world market. The oil companies want this pipeline because it will link the Alberta Oil Sands with the Gulf Coast refineries and Gulf seaports from which oil and refinery products can be shipped worldwide. These same refineries are already producing and exporting almost 2.9 million barrels of refined fuels per day to various countries around the world. SEARCH: "U.S. Exports Refined Fuels." The Keystone XL project will create up to 5000 temporary pipeline jobs for about two years during the construction of the pipeline according to data from TransCanada, the pipeline company. The claim which is being asserted about the pipeline creating 20,000 direct construction and manufacturing jobs is unsubstantiated. For the report by Cornell University SEARCH: "Pipe dreams? Jobs Gained, Jobs Lost by the Construction of Keystone XL."

    • Robert PMO | February 11, 2012

      Mike is wrong.

      The Keystone pipeline oil was going to go to Gulf Coast buyers who would refine it there and sell the refined products into the US market.

      Of course they reserve the right to ship the oil and refined products where ever they want in case there is a need to do so (refinery shut-downs, lawsuits from enviro-nuts, etc.). But their plan is to sell it to the US market.

  16. Robert PMO | February 11, 2012

    In aquifer areas, the Keystone pipeline was going to be buried and encased in concrete making the chance of a leak virtually impossible.

    But the opposition to the pipeline is really about shutting down the oil sands and therefore saving the planet, which is a typical left-wing fantasy.

    The fact is that the oil sands will keep producing for the next 200 years, the oil will get to the West Coast either by pipeline or by railcar, and Asia will buy all of it.

  17. eric taylor | February 12, 2012

    If you want to read something scary, try The Third Industrial Revolution by Jeremy Rifkin, which
    explains how we in the U.S. are falling behind the rest of the world in developing green energy.
    Yes, the new revolution is more efficient, with hydrogen and other storage systems being built
    along with a smart grid, with electric and hydrogen powered cars coming on line soon. All types
    of solar energy deployments are being built, as we speak, with an improved communication
    system to coordinate all of the inputs in a collaborative manner worldwide. Africa, Asia and
    Europe are all involved in formal structural green energy infrastructure deployments of internet
    like energy systems to manage their futures. All we have is piece meal projects going in the U.S.A.
    that will not be nearly as efficient.

  18. Skeptical Debunker | February 15, 2012

    Tony is right. Oil will flow to the highest bidder (see Alaskan oil going to Japan and now China). Now if one really wants to "reduce our dependence on foreign oil" (ignoring that Canada is not a state of the USA) AND ensure "cheap oil", then don't just approve the pipeline but require that all of its oil be kept in the USA AND that its price be significantly lower than AND replace oil imported from you name it (Middle East, Venezuela, Russia, etc.). Quite a tall order and likely unworkable.

  19. halley kempt | February 21, 2012

    We alraedy get oil from Canada. The second largest importer to U.S. So who really needs the XL pipeline? Canada. We export more oil than we import.

  20. a. niethammeraniethammer@hotmail.com | March 2, 2012

    May I hope the Enbridge pipeline never comes. The Pipeline is not the problem; it's the Tankers navigating these treacherous channels. From what I read as a Canadian, a disaster could (will) happen sooner or later. – Alfred

  21. Tom Ervin | April 15, 2012

    Keystone was delayed at the request of a number of governors (incl lNebraska) (some GOP) who were righteously worried about their environment.

    For readers who do not understand the Ogallala aquifer, better do some homework. It is huge and it supplies a huge number of people and crops.
    It is important to be as careful AS POSSIBLE.

    Many readers here are more worried about politics, or about energy, than about water in the USA. In this case, they'd rather smear Obama, and get us a bit more oil somehow, and would risk a great deal.

    Environment matters to us all, even if it is not where You Live. It really is more important than 5,000 temporary jobs. Blame Obama if you must, but the project needs more study to find the Best Way To Do It.

    Wrapping the pipeline in concrete is not a leakproof solution. Concrete cracks, ALWAYS. Just makes it harder to repair a leak. Dumb if they do it.

    This pipeline will probably happen. Pray for us, hope nothing tragic happens. It'd be a nice big target for sabotage. Think outside your box.

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK