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TransCanada Corporation (USA) (TRP), Enbridge Inc (USA) (ENB) – Everything You Need to Know About Keystone XL: Why Other Countries Care

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TransCanada CorporationBy now, you have probably heard about TransCanada Corporation (USA) (NYSE:TRP)‘s Keystone XL pipeline. For even the most casual observer of the energy industry, this project has been the spark that has ignited political debates ranging from environmental hazards, emission of greenhouse gasses, and North American energy independence. In his recent speech on climate change, President Barack Obama made a point to speak about Keystone XL and what it means for the U.S

There are clear environmental concerns regarding the construction of this pipeline, but the story is so much more than that. To help better understand the entire story of the Keystone XL pipeline, we at the Motley Fool want to give investors a better look at what the Keystone XL means for all parties involved. In this part, we will take a look at some of the countries other than the U.S. and Canada that have a marketed interest in the outcome of the Keystone XL.

Getting squeezed out
Over the past couple of years, the U.S. has been reducing its oil imports. Rather than shaving a little from every place we previously did business, we have actually consolidated our imports. Now we import over 60% of our oil from four countries: Canada, Saudi Arabia, Venezuela, and Mexico. It’s not happenstance that these countries have remained the sources of our primary oil imports, either. Aside from the geographic benefits of importing from Canada, all four countries are the primary sources for heavy oil around the world, a product that has been very difficult to find in the U.S.

Source: U.S. Energy Information Administration, author’s calculations

With Keystone XL potentially delivering 830,000 barrels per day to the Gulf of Mexico, and Enbridge Inc (USA) (NYSE:ENB)‘s pipeline expansions adding another potential 400,000 barrels per day, the piped oil would essentially replace the more expensive heavy crudes that we are receiving from Saudi Arabia, Venezuela, and Mexico. These three countries would most likely see their shares of crude exports to the U.S. significantly diminish.

For these three countries, a lot is on the line. While the total share of oil from Mexico and Venezuela represents 7% and 8% of total U.S. imports, respectively, the U.S. represents 40% of oil exports for Venezuela and 85% of oil exports for Mexico. Although Saudi Arabia is highly dependent upon oil revenue to support the kingdom, it also has the luxury of selling its products to other nations just as easily as it does to the U.S.

If Keystone XL gets built
Not only would Keystone XL likely reduce imports from both Venezuela and Mexico, but the price for their oil delivered to the U.S. could drop as well because refiners would have more options in choosing their crude sources. This could put a big dent in these countries’ economies. For example, Venezuelan oil exports represent 33% of the country’s GDP. It is likely that if the U.S. cuts its shipments of Orinoco belt heavy, the country will need to find other demand centers.

Of all the countries, though, Mexico has the most to lose, not only because so much of its oil is sent to the U.S., but also because it does not have the same partnerships with Gulf Coast refiners that Saudi Arabia and Venezuela do. Saudi Arabia’s national oil company, Aramco, has a 50/50 joint venture with Royal Dutch Shell plc (ADR) (NYSE:RDS.A) for Motiva Enterprises. Also, Venezuela’s national oil company, known as PDVSA, wholly owns the refining and retail business Citgo.

Company Owners Total Gulf Coast Refining Capacity (Mbpd)
Motiva Enterprises Saudi Aramco (50%) and Royal Dutch Shell 1,069
Citgo Petróleos de Venezuela (100%) 591
Deer Park Refining Limited Partnership Royal Dutch Shell (50%) and Petróleos Mexicanos (50%) 327

Source: U.S. Energy Information Administration

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