On May 22, the House of Representatives approved a bill declaring that a presidential permit was not needed to approve the Canada-to-Nebraska leg of the Keystone XL pipeline, a move that would take a decision on the project away from the Obama administration.
The Keystone XL Pipeline Project is a proposed 1,179-mile, 36-inch-diameter crude oil pipeline, beginning in Hardisty, Alberta and extending south to Steele City, Nebraska. The project is estimated to cost about $5.3 billion to build and will support the creation of 9,000 jobs on the American portion of the pipeline, and about 2,200 on the Canadian side. The pipeline will have the capacity to transport 830,000Bbls/d (barrels per day) to Gulf Coast and Midwest refineries, reducing American dependence on oil from Venezuela and the Middle East by up to 40%. The projected in-service date is expected for early to mid 2015, depending on the delays for final approval.
Source: TransCanada Corporation (NYSE:TRP)’s Keystone XL Project
A Long-Awaiting Process Plagued With Hurdles
In May 2012, TransCanada Corporation (NYSE:TRP) filed a new application for a presidential permit with the U.S. Department of State, a requirement for building any cross-border pipeline. TransCanada Corporation (NYSE:TRP) also chose to proceed with the southern portion of its Keystone expansion as a separate project, the Gulf Coast Pipeline Project. In March 2013, the U.S. Department of State released a Draft SEIS (Draft Supplementary Environmental Impact Statement) on Keystone XL that reaffirmed “there would be no significant impacts to most resources along the proposed project route.” However, the project’s environmental opponents disagreed and the EPA (Environmental Protection Agency) rated the State Department’s environmental report as insufficient:
“Based on our review, we have rated the DSEIS as E0-2 “Environmental Objections- Insufficient Information.”
The Republican-controlled House voted 241-175, with less support from Democrats than during the most recent attempt to speed up pipeline approval:
“We’ve waited 1,700 days for this project,” Fred Upton, Republican of Michigan, said as the floor debate wound down, adding that moving oil by pipeline was “safer and more economical” than other methods.
The White House’s Office of Management and Budget said in a memo on Tuesday that the House bill “conflicts with long-standing Executive branch procedures” and that Obama’s advisers would recommend a veto. The House legislation stated that the environmental impact studies already completed would be sufficient to approve the project without the need for additional review, and also calls for legal challenges to the pipeline to be filed within 60 days.
Similar Projects on the Way For TransCanada’s Direct Competitors
Enbridge Inc (NYSE:ENB) is projecting to build the Northern Gateway pipeline, a $5.5 billion project that would provide access to the large and growing international markets in Asia and the U.S. The company has designed a dual pipeline to transport oil with a capacity of 525,000Bbls/d and another to transport condensate with an initial capacity of 193,000Bbls/d. Both pipelines would have about 731 miles in length. However, such a project requires studies and permits, delaying further the beginning of construction. The commissioning of the project is expected for late 2017.
Source: Enbridge NGP
Kinder Morgan Energy Partners LP (NYSE:KMP) gave the green light to a $5-billion expansion of its existing Trans-Mountain pipeline on April 2012, from Edmonton to the Pacific coast near Vancouver. If the regulatory application process is successful, construction of the new pipeline could begin as early as 2016 with the commissioning expected in 2017. Therefore, the current capacity of 300,000Bbls/d would rise to 850,000Bbls/d, surpassing the capacity of Enbridge Inc (NYSE:ENB)’s Northern Gateway plan.
Source: Kinder Morgan Energy Partners LP (NYSE:KMP)
Enbridge Inc (NYSE:ENB) and Enterprise Products Partners L.P. (NYSE:EPD) completed a project to reverse the flow direction of the 500-mile, 30-inch diameter pipeline in May 2012, allowing it to transport crude oil from the bottlenecked Cushing, Oklahoma hub to the vast refinery complex along the Gulf Coast near Houston. The Seaway pipeline is a 50/50 joint-venture between Enterprise Products Partners L.P. (NYSE:EPD), the operator, and Enbridge Inc (NYSE:ENB). The pipeline has a capacity of 150,000Bbls/d along a route parallel to Keystone, directly competing directly against TransCanada Corporation (NYSE:TRP)’s Keystone pipeline.
Source: Seaway Crude Pipeline Company LLC
Bottom Line
These developments raise the possibility that Canada’s two leading pipeline companies (TransCanada Corporation (NYSE:TRP) and Enbridge Inc (NYSE:ENB)) can lose out to American rivals in the race to get fast-rising oil production from Alberta, Saskatchewan and North Dakota to higher paying refiners on the Gulf Coast, Asia and California. Then much is at stake for these companies, waiting for the political game between proponents and opponents of the project to come to an end. Keystone XL needs presidential approval because it crosses a national border. It has been pending with the administration since 2008 and is now undergoing a second round of review by the State Department.
Notably, the Wednesday voted bill faces an uphill battle because it would have to pass the Senate with enough votes to overcome a promised veto from President Obama. Therefore, the push from the House of Representatives does not appear as an antidote to the endless studies and the final approval process. Nevertheless, I believe that Keystone XL will get approved in its due time, when President Obama will decide it, a decision that could be delayed a little more giving the recent events.
The potential contracted EBITDA that would be generated annually by Keystone XL is estimated at $1.02 billion, with the entire Keystone pipeline system generating about $1.7 billion of contracted EBITDA when it is all completed. Therefore, now is the time to act for investors looking for an energy stock with good upside potential. Adding to this opportunity, TransCanada Corporation (NYSE:TRP) yields currently a 3.74% dividend which is appealing compared to its industry average of 2.19%. This opportunity will pass only once, time to get on board.
The article A Push From the House of Representatives for Keystone XL originally appeared on Fool.com.
Stephan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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