TransCanada Corporation (USA) (TRP), Enbridge Inc (USA) (ENB): U.S. and Canada Energy Fate Lies in Each Other’s Hands

Page 1 of 2

Canada’s oil industry is like Bizarro Superman.

For those of you who aren’t comic book nerds or are not die-hard fans of Seinfeld, Bizarro Superman is the antithesis of Superman. His actions were always the exact opposite of what we would expect from Superman. In the world of energy, Canada is much like Bizarro Superman because of how different its oil industry is to that of the United States. Let’s take a look at this bizarre scenario and what it means for some energy companies.

The North American odd couple

Canada has consistently been a net exporter of oil since 1981. Yet despite exporting more than 3 million barrels per day to the U.S., provinces east of Ontario import more than 60% of their oil needs. There are two primary reasons this happens: (1) Canada doesn’t have adequate infrastructure to economically deliver oil from the Western shale plays to the Eastern refineries, and (2) The majority of Eastern refineries are built to handle lighter, sweeter crudes that came from foreign sources.

TransCanada CorporationNow let’s contrast this with the U.S. Since 1958, we have been a net importer of crude oil, yet today many of our refineries are oversupplied and are sending more than 750,000 barrels of refined products to foreign markets. Also, the massive boom in shale oil has U.S. refineries flooded with light, sweet oils. This type of oil is so abundant that refineries are at a saturation point for this kind of oil and we have exported oil at a rate of about 100,000 barrels per day over the past three months.

What really brings the U.S. and Canada’s energy relationship into Bizarro world is that both countries are trying to increase imports and exports to each other at the same time.

The yin to our yang

The reason we are seeing such a large uptick in both imports and exports to Canada is that both countries have what the other needs: Refineries in the Gulf Coast of the U.S. are built to process heavier, more sour crudes from places like Mexico and Venezuela. Meanwhile, Canada’s Eastern refineries have operated on those lighter oils from places like the Middle East and the North Sea. Luckily for both countries, U.S. shale oils and Canadian oil sands are the perfect fit for the other countries’ refineries.

Despite the obvious fundamental advantages of increased trade of oil between the two countries, there are still some major political hurdles to conquer. On the Canada-to-U.S. side of the argument, TransCanada Corporation (USA) (NYSE:TRP)‘s Keystone XL pipeline has been stuck in litigation for several months. The proposed pipeline has the potential to deliver 830,000 barrels per day of oil to refineries in the Gulf of Mexico, a region that is capable of refining about 2.3 million barrels per day of heavy sour crude. The problem, however, is that the pipeline is receiving stiff opposition from political groups over environmental concerns. Other pipelines such as Enbridge Inc (USA) (NYSE:ENB)‘s Mainline and Energy Transfer Equity, L.P. (NYSE:ETE)‘s Trunkline Reversal project have also met some opposition over similar concerns to Keystone XL, but they certainly have not seen as much media attention.

Refineries in U.S. PADD Districts II and III, also known as the Gulf Coast and mid-continent districts, combined to refine about 640,000 barrels per day of Canadian oil sands, much of that coming from Enbridge Inc (USA) (NYSE:ENB)’s and TransCanada Corporation (USA) (NYSE:TRP)’s existing oil pipelines as well as rail shipments. If refineries ever hope to replace other foreign heavy oils with Canadian oil sands, though, more pipeline capacity will be needed.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!