The Keystone Pipeline Fallout: Canada Makes Over a Billion New Friends

"If you do not change direction, you may end up where you are heading." Lao Tzu

You can forget about energy independence for now.

Without Canadian oil it is nothing but the latest American pipe dream.

In the wake of the Keystone Pipeline decision, Canada has decided to play ball with China instead.

According to Canadian Prime Minister Stephen Harper, the U.S. reluctance to build the Keystone Pipeline has caused his nation to increase the flow of oil headed west.

Instead of flowing south into the U.S., the same oil is now going to be headed to China.

"Look, the very fact that a 'no' could even be said underscores to our country that we must diversify our energy export markets," Harper said last week, referring to the Keystone Pipeline decision.

"We cannot be, as a country, in a situation where our one, and in many cases, only energy partner could say no to our energy products. We just cannot be in that position," Harper said.

Considering that Canada is our No. 1 source of oil, Harper's decision could place a serious dent in the idea that the United States can become energy independent in the next two decades.

Energy Independence: Forty Years of Broken Promises

Of course, energy independence has been the goal for some time now.

Every U.S. president dating back to Richard Nixon has proposed his own "silver bullet" to get us there.

But once elected, few leaders seem willing to explain to Americans how this will happen, the costs that are required and the sacrifices that must be made.

However, as supply concerns become greater and conventional sources of crude grow increasingly scarce, Washington can't seem to get it right.

The larger truth is that the United States and its North American trading partners stand to benefit from the drilling breakthroughs we have put into the field in recent years.

With these new technologies, the United States actually has enough recoverable oil for the next 200 years, according to the Institute for Energy Research.

Shifting forward, the United States can drill its shale fields and obtain a greater share of resources from the oil sands of Canada. But we need to make these sources a priority over the medium to long term.

And Washington doesn't seem to be doing that. In fact, they're doing the opposite.

The current administration continues to tout alternative energy projects that won't become economically viable for many years. They also have pushed policy and stimulus measures that rely too heavily on shaky assumptions of economic growth and human behavior.

Oil and natural gas (and even coal) will be necessary tools to maintain and stimulate future growth. Like it or not, they will remain the cornerstone of current and future energy policy.

Yet today, China seems poised to benefit from the U.S. idea of oil as the energy source of the past.

The Keystone Pipeline: How to Profit on China's Good Fortune

Ironically, China adopted a similar energy policy to ours in the past.

It centers on securing as much oil as possible, from whatever source possible. But that has significant drawbacks, too. The Chinese exposed themselves to the perils of international diplomacy in unstable parts of the world, particularly Africa.

What raises the stakes in Canada is that our neighbor to the north offers one of the most important characteristics one could seek from a trading partner: long-term political and economic stability.

Canada's business-friendly climate, resource-rich environment, and willingness to build infrastructure for its export markets are vital socioeconomic indicators of future success.

That may be why Chinese companies have already invested heavily in Canada's energy sector.

China's Sinopec made headlines in October when it agreed to buy Canadian oil and gas company Daylight Energy for a little more than $2 billion. Other companies, like EnCana (NYSE: ECA) and Progress Energy (NYSE: PGN), are considered potential buyout targets in the near term.

But speculation on potential M&A activity isn't the best bang for your buck as an investor.

We have to examine the companies poised for long-term growth that have increased cash flows and rising demand for the services.

This takes us back to our favorite part of the energy value chain: the midstream.

Midstream companies are the ones that connect the upstream companies (exploration and production) to the downstream markets (retail, refining and marketing).

Companies that own the pipelines that need to transport oil from the Canadian oil sands to new export terminals in British Columbia, or down to the United States, will see a steady increase in service demand over the long term.

We are still just entering the most profitable time in history for the energy sector, and investors who pay attention to these growing shifts in policy, technology, and supply constraints are well positioned to enjoy very happy returns.

After all, oil always seems to find an eager buyer. But you don't need to tell that to the Canadians.

Over a billion people on the other side of the Pacific are their new best friends.

[Editor's Note: The cost of oil is on the rise, and if you were a member of Dr. Kent Moor s' Energy Advantage, you'd have already known how to profit off the Canadian oil boom.

Kent continues to show his Energy Advantage subscribers how to profit on the best energy companies, even as costs rise.

And it doesn't take much money to make huge gains in this sector. To access Kent's latest research, go here now.

It's the story of the summer in the oil markets.]

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  1. theonlymaskman | April 11, 2012

    What a rambling, disjointed article!

    • Monty | April 11, 2012

      Exactly.
      Article is a notch or two above horsepoop.
      The Keystone pipeline already exists. Probably has for many years.
      The Keystone XL pipeline is an extension and/or an addition to the existing pipeline.
      Apart from the environmental concerns, the delay/rejection could be because of a well-connected party prefering to transport the crude by rail.
      Why would Canadian oil be part of America's energy independence?!?!

  2. Ian Hicks | April 11, 2012

    Hi James, yes it is staggering how inapt Western Governments are in General, and the big hope Obama, certainly for us in the UK and the rest of Europe, after years of G.W. Bush. Obama was our hope of some education and enlightenment. How the politians hood wink us every time , that we should think "this time this one will be different".
    I should have thought it treasonable for any government to ignor National Security , and yet this twerp is doing presicley that ?
    James I am in the UK and N.Z. and finding it difficult finding a broker to handel Options, can you help please, I am a client with Kent and want his Sigma portfolio ?
    Regards
    Ian

  3. Bob | April 11, 2012

    The issue is not if this country wanted this pipeline, it just didn't want it ran the way it was proposed. If the oil companies would have played ball and took to interest the alternate routes around the senisitive areas this would not have ran into as much problems. They are making record profits today if this was so important to the economic welfare as they indicate it is. They should have been more in line with this and stepped up and invested a few million more so that the enviromental issues could be avoided.

    • Todd J. Smith | April 11, 2012

      The route around the sensitive Ogalala aquifer that serves most of the great plains residence for water is not the only problem with the Keystone pipeline or tar sand oil. The other problem is the way tarsand oil is produced. You don't simple drill a whole in the ground and pump out oil, you strip off the whole environment, topsoil, plants, trees, animals, streams, everything to get down to the tarsand. Then you cook all the oil out of it with vast quantities of natural gas. So oil companies are willing to distroy the boreal forest of northern Alberta the size of Florida to get to all the tarsand oil which is more co2 intensive than normal oil to processing. This is why Canada pull our of the Kyoto Protocol. The cost for CO2 offsets where going to be too expensive if they went forward with tarsand oil production. Most Canadians don't want this especially the first nations people, their environment is being distroyed, the caraboo will no longer migrate because of the huge pits and their water and air are being polluted. Good luck getting the western Canadian pipeline built.
      Most people don't know half of the story about why there is such a push back from both Canadians and Americans about tar sand oil.

    • Bill | April 11, 2012

      Bob, XL did redraw the pipeline route, submitted the amended application but was still staled by your's truly Obama to secure political theatre. This is absolutely akin to a starving person rejecting wholesome food because it is not delivered with silver service! Just hope the folks in the US relish higher prices and start to like walking, they are now set for both in large proportions. Enjoy!

    • Richard | April 12, 2012

      interesting that thousands of miles of old pipeline already transport oil and NGLS across the Ogalala area, now the new state of the art pipeline with saftey built in would ne a natural to replace the old. having said that the enviromental study was under way for some 40 months and there was no objection untill Obama was looking at the political issues. FOr the enviromentalists the Oil Sands are one of the finest state of the art extraction processes in the world, over a thousand scientists work on nothing else, 80% of the Oil Sands are accessable by SAGD methods. Canadians would appreciate it if the American Critics would get their facts straight and do some research before telling us how to operate.

    • billmtg@gmail.com | April 15, 2012

      Bob, you are insane. This is the same rhetoric we are hearing from Washington, and it could not be further from the truth. Big oil controls puppets like Obama and Congress and shows how stupid people like you really are. Bob you are a sheep. If the present administration or Congress had ANY interest in doing business with Canada here they would have had solutions to problems from engineers and big oil executives proposed and doen dealed with high fives all around handing out cigars to embrace the project with open arms as it meant true energy independence and many, many high paying jobs. So either our elected officials are insane or stupid like you like you Bob or on the take. I think the latter. So instead of doing the right thing here and getting a near endless suplly of oil at a cheap price form a gloabally stable ally that woudl beenfit our economy tremndously we choose certain death for our country and to ravage our own economy because of crooks in government and people like you Bob who are too stupid to know the difference. Congress nor the EPA never really weighed in on the project and figured out the solutions to potential issues, they instead poo pooed the whole thing and literally passed the buck for building the pipeline to the Chinese. So I say Bravo to Canada for saying no to the US. I hope that the US economy and the US goes down in flames because of it, and that Barack Obama's name as well as Bush's goes down in history as crooked and that the US people likeyou Bob will be known as stupid sheep for failing to pull the fat out of the fire with the most obvious solutions to our most pervasve problem the cost of fuel. Instead of becoming energy independent we now have to rely upon unstable governments for increasingly shakier and shakier suppplies of oil in politically unstable areas of the globe and at tremendously higher costs ! ! ! Nop we woudln't want Canada as a traqding partner, we woudl rather deal with Arabs and Muslims who hate us and having to ship oil in undefendable tankers half way across the globe ! ! ! Brilliant thinking Bob ! You are a Rhodes scholar ! ! ! As gas goes up to $5, $6, $7, $8, $9 and $10 dollars a gallon in the US and our economy is destroyed and the costs of everything skyrocket, you can chew on that, and at the same time I will sit by and applaud the Chinese for ther sound thinking and by then Bob maybe even people like you might get some common sense. Higher and higher fuel costs mean the death of the US Bob. Not only will we not be bale to repay our debt, but we won't be able to function as the society we are used to. The only thing people like you are smart emough to do is borrow more money from the Chinese, and destory this country with debt. Teh Chinese are not so dumb and they went to the table with the Canadian's immediately. Thanks, Bob, Barack, George and COngress for equivocating with the best looking girl layed out there in front of us naked begging for it, giving it all away, and you all find a way to say no, and to go to bed with a diseased, expensive, ugly alternative. Thanks, Bill

  4. Mike | April 11, 2012

    I am Canadian and have followed the keystone issue closely. I am constantly amazed at the outright lies that are being told. 1) this has nothing to do with US Energy independence. Not one drop of of the bitumen to be carried in the keystone was slated for the US market. It was going to be shipped directly after refining to Asia. 2) yes, our prime minister loves to say 'if the US doesn't want it, we will ship it to China? What he doesn't say is how he is going to get it there. Sure, he claims the northern gateway pipeline through British Columbia will be built to do jus that. What he doesn't say is that opposition in Canada to the northern gateway pipeline makes the keystone stuff look like a walk in the park. It will never be built.

  5. mark s | April 11, 2012

    I live on the coast of british columbia and i can tell you no subject in recent years has stired the emotions like this pipeline to the coast from alberta, this is one of the biggest areas of untouched wildernness enbridge has the worst record in N America when it comes to building and maintaining these projects, and some of these huge fjiords make prince william sound a cakewalk to navigate, even the ferries have a hard time. So i wouldn't hold your breath on this one guys.

  6. chris gleason | April 11, 2012

    I think the issue of who is manning the DOE needs to be addressed.
    we spend 25 Billion a year and what do we get?
    I never once saw, read or heard what this cabinet level post had to
    say aout the pipeline.
    We, as taxpayers, could save 75 Billion/year by the elimination
    of the DOE's (energy and education)
    Both, in the opinion of this writer, utter failures!

  7. FoonTheElder | April 11, 2012

    The pipeline is going through the US to Port Arthur, Texas. Not so it can be used in the U.S., but so the oil can be exported to China, Japan and Europe.

    Let Canada build the pipeline through British Columbia's forests and see how they react to an oil spill. After all, the vast majority of the oil is going to the export market one way or the other.

  8. Roger | April 11, 2012

    The Keystone pipeline was a bad deal for Canada. It just dosen't make sense to export raw product when you can refine it at home and sell it for a lot more. Not to mention the long term employment for thousands being pipelined across the border.
    Bottom line is Obama should have done whatever he had to do to get that project going, not to take advantage of a deal like that one was beyond stupid.

  9. Bernard Durey | April 11, 2012

    This whole idea of being less dependent or becoming independent of,at first foreign oil,then for some it changed to overseas foreign oil and the Mideast control. However,with the Kyotol and the Montreal contracts,along with issues in the states or some states it has gotten side tracked. There have been concerns of hook-ups with the Bakken Formation in North Dakota as well. We know now that there is a new company Oneok that is planning a pipeline from Stanley,North Dakota(an area clost to the cola gasification project) going to Montana border and then run south through Wyoming and Colorado(above the Nobraro Shale Formation)where they can get mor crude from,and then across Kansas(there part of the Ogallala Aquifer) and on to Cushing,Oklahoma. How long it will take for that approval and may or may not have Canada inmind may be unknown at this time. Are we still going to b ecome totally independent of overseas foreign oil and or even foreign oil period. I don't hink anyone really blamed Canada for pulling out of the Kyotol Treaty and the Montreal Treaty was certainly considered I would think along with the whole concept of global warming and pollution that they certainly would not be able to come into compliance with. So wait and see I guess.

  10. Robert in Canada | April 11, 2012

    Most of my fellow Canadians prefer to sell our oil to the US, but the US has become an un-reliable customer, so our oil is going to China instead.

    As for the pipeline crossing a so-called "sensitive area" – any honest person would admit there are thousands of miles of old pipelines already criss-crossing over the "sensitive area" for decades – with no problems. And the state-of-the-art Keystone pipeline would be problem free too.

    The real reason for saying NO to Keystone is the radical left wing's back-door attempt to shut down Canada's oil sands (the pipeline was going to carry Canadian oil sands oil).

    They don't care that Keystone would be using the best and safest technology in the world, or that Canada's oil sands are cleaner than heavy oil produced in California, Venezuela, or the middle east.

    They are just radical anti-capitalists who will focus on destroying some other industrial project or industry after they finish destroying Canada's oil sands.

    Sorry all you radical left-wing nuts, but you are not going to succeed.

  11. Malcolm Rawlingson | April 11, 2012

    Study after study showed that the water aquifers were not even remotely at risk from the construction of the pipeline. The REAL issue is Obama did not want to give the approval in an election year and lose all the environmental voters – that simple. Nothing to do with pipeline routes or creating jobs or getting the economy moving – as if anyone thought that the Pres. cares a hoot about any of that.
    But the message to us up here in Canada has been sent loud and clear. The oil sands contain several trillion dollars worth of oil even at todays prices so we will sell it to those who are less hostile to us. If you really want to pay 9 bucks a gallon for your gas vote for Obama he is long on torque and short on traction.

  12. eric taylor | April 11, 2012

    There are legal bottlenecks and a lot of political largesse for the Keystone, not to mention over
    a dozen leaks spot on from the detractors, but now a great big leak to Chairman Mao's
    descendants that needs be addressed. China probably would have been given privy to Canada's
    oil in time, while the U.S.A. spurned early attempts of the yellow devils acquiring our oil interests,
    but because of the mismanagement of our political economy, we should be giving away our
    best assets on a gold platter for decades to come. I do so look forward to the dog days of summer,
    for what surprises are yet to come.

  13. Ed the Grocer | April 12, 2012

    If you want a sure bet you can bet that the anti pipe line effort to the British Columbia mid coast will be unlike any Canadian effort you have ever seen before. Yes, there is no doubt that we are getting screwed on the price going south. Trouble is that anything we send to the far east will be paid for in the same US dollars. Also, the common understanding is not if there will be a spill but when. Ottawa commonly thinks that BC is so far away that no one will ever know. My bet is that it is how a national election will be lost. I do have sympathy for Mr Harper. The longer he is in office the more he must realize that there are terrible things that he will have to live with. Such as the "liberation" of the Libyans. The mess in the middle east that we are in. We are no longer 'peace keepers'. We are becoming something else. And the oil. It won't go bad sitting where it is.

  14. teresa | April 12, 2012

    United States "energy independence" is just a pipe dream (pun intended).

  15. bill kandravi | April 12, 2012

    James Baldwin I had to reply earlier and then I had to come back you have very good and it is ashamed but truthful points that the USA could treat there neighbor that way who really need who that should not matter but when you have THE SO CALLED MASKMAN leave you a comment like that he has a good nickname if he is unable to state just one thing about your article it makes me wonder if he has any respect for himself let alone your readers keep up he reporting we all should be able to have a say that doesn't mean it is set in gold but for the (rambling disjointed article! ) you know it was nice he kept it so short just like his respect for others opinions and not even backing up why he said what was said. You did your job and I respect that even if I would disagree a respectful person would back it up or not say anything which is basically what he said. I respect your company even for printing his disrespected comments. Good Fair Work on your end.

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