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Turns out the Keystone oil pipeline will be built – at least, part of it.
TransCanada Corp. (NYSE: TRP), the Calgary-based energy company trying to get the project approved, said yesterday (Monday) it would seek immediate approval to start building the southern half of the pipeline that runs from Oklahoma to Texas. That segment doesn't need a presidential permit because it doesn't cross a U.S. border.
TransCanada said the southern portion of the Keystone oil pipeline will allow Midwest oil to reach Gulf Coast refineries. There is currently a glut of oil produced in that region.
"Gulf Coast refineries can then access lower-cost domestic production and avoid paying a premium to foreign oil producers," TransCanada CEO Russ Girling said Monday.
The pipeline will carry light crude oil produced in North Dakota, Montana, Kansas, Oklahoma, and Texas. It will cost $2.3 billion and be completed in 2013. It will also create about 4,000 construction and support jobs.
TransCanada also said it would reapply for the full Keystone oil pipeline construction – a hot button issue in this election year.
Why President Obama Rejected the Keystone Oil Pipeline
The full 1,700-mile, $7 billion pipeline would bring oil from the vast Canadian tar sands in Alberta to refineries in Port Arthur, TX.
U.S. President Barack Obama rejected the Keystone oil pipeline proposal in January and said the 60-day deadline which he had to approve it was too limited to decide on the project.
Environmentalists cheered the decision – they said the energy exerted in developing Canada's crude oil would trigger more climate change, and the pipeline could contaminate water in the regions where it's built.
TransCanada plans to work with Nebraska legislators to design the pipeline's route through the state, which is the region with the most environmental concerns. It hopes avoiding the state's sensitive Sandhills region will help land a permit to complete the pipeline's construction.
Most experts believe the Keystone oil pipeline will eventually be approved, but right now it's too entrenched in the political posturing that runs rampant in election years.
All the clues to what's really going on are right in President Obama's rejection statement.
"This announcement is not a judgment on the merits of the pipeline, but the arbitrary nature of a deadline that prevented the State Department from gathering the information necessary to approve the project and protect the American people," the president said.
The Republicans included a deadline for a decision on the Keystone oil pipeline in the payroll tax cut extension deal made at the end of last year. Members of the GOP wanted to make President Obama choose between his green supporters and approving a project that TransCanada (NYSE: TRP) says will create 20,000 jobs.
"I'm disappointed that Republicans in Congress forced this decision," President Obama said, "but it does not change my administration's commitment to American-made energy that creates jobs and reduces our dependence on oil."
Investors Can Profit While Full Pipeline is Stalled
While the full Keystone oil pipeline project continues to twist in the wind, investors shouldn't ignore the Canadian energy sector – especially the Athabasca tar sands.
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.
Companies operating in these tar sands are unlocking incredible profits, and will continue to whether or not the Keystone oil pipeline is completed as oil heads toward $200 a barrel this year.
That means interested investors should look for plays on the Canadian energy industry.
"For an overall spread of investments in the Canadian energy business, investors should consider the Claymore/SWM Canadian Energy Income Index ETF (NYSE: ENY)," said Money Morning Global Investing Strategist Martin Hutchinson. "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 – another attractive sector that Canada dominates.
Hutchinson said investors looking for one company should consider Suncor Energy (NYSE: SU), what he calls "the best major tar sands player."
Suncor last month 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. Its dividend yield is 1.2%.
While the Keystone oil pipeline fights for approval, look for Canadian oil stocks to continue to soar.
News and Related Story Links:
- Money Morning:
Five Fallacies of the Keystone Oil Pipeline