TransCanada Corporation (USA) (TRP), Enbridge Inc (USA) (ENB): Keystone XL Delayed Again; But Does It Even Matter?

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There was more bad news for TransCanada Corporation (USA) (NYSE:TRP)'s  troubled Keystone XL pipeline last week. The fate of the project is likely to be delayed until at least early 2014 following accusations of a conflict of interest during the project's environmental review. It's a big blow for the energy industry, where chronic shortages of transit capacity have stifled growth.

TransCanada Corporation (USA) (NYSE:TRP)

But according to one oil executive, Keystone no longer matters. "It's not critical any longer," Harold Hamm, CEO of Continental Resources, Inc. (NYSE:CLR), told the National Review last week. "They just waited too long. The industry is very innovative, and it finds other ways of doing it [shipping crude] and other routes." When one of the world's most successful oil prospectors speaks, investors should listen.

Is Keystone still relevant? While Keystone remains mired in political purgatory, other midstream names are stepping up to add capacity in North Dakota.

Since 2011, Enbridge Inc (USA) (NYSE:ENB), the largest operator in the region, has nearly doubled Bakken capacity and now moves 475,000 barrels per day.  The company plans to add an additional 225,000 barrels per day of capacity in the state by 2016.

And while pipeline capacity has generally lagged production growth, rail transit has stepped up to cover the gap. According to the Association of American Railways, crude-by-rail shipments have increased from under 100,000 barrels per day in 2010 to over 620,000 barrels per day today. By many estimates, the combination of pipelines and rail should be enough to keep up with surging Bakken production with or without Keystone.

Things are looking up for the oil sands as well. Enbridge Inc (USA) (NYSE:ENB), also responsible for shipping two-thirds of Western Canadian crude exports, has been silently adding capacity through its market access initiatives. Management estimates that it can add 1.7 million barrels per day of export capacity by mid-2015 through the elimination of bottlenecks within its system and reversing the Line 9 route.

Entirely new pipeline options are emerging as well. In May, Kinder Morgan submitted a proposal to regulators to triple capacity along its Trans Mountain route, potentially adding 593,000 barrels per day of capacity to Canada's lower West Coast.

Last month, TransCanada Corporation (USA) (NYSE:TRP) announced its proposed Energy East pipeline, which if approved could ship 1.1 million barrels of bitumen from Alberta to Quebec and New Brunswick. And as it has in the Bakken, crude by rail is making up for the gaps in the pipeline industry.

When Keystone was proposed in 2008, few of these other alternatives were on the table. But with so much transit capacity now under construction, Keystone XL is becoming less relevant.

Buy, sell, or hold? Bakken producers like Continental Resources are the biggest beneficiaries of this trend. Ample transit capacity will relieve bottlenecks in the supply chain, ensuring Bakken crude prices stay aligned to other North American benchmarks.

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