By 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 last Tuesday’s speech on climate change, President Barack Obama made it clear that “[allowing] the Keystone XL pipeline to be built requires a finding [from the Department of State] that doing so will be in our nations interest…”.
The environmental concerns regarding the construction of this pipeline will be significant factors in whether it gets approved, 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 it means for all parties involved. In this third part of a series, we will take a look at what the pipeline means for U.S. refiners, and at the possible outcomes whether it gets rejected or approved.
Who does this affect?
The Keystone XL pipeline, and much of the other major oil sands pipelines between the United States and Canada, can only physically deliver to three distinct regions: Midwest, Rocky Mountains, and Gulf Coast. These three regions, in what could be called the “pipeline corridor”, are responsible for 72% of all refining capacity in the U.S.
While it is possible that Keystone XL could deliver crude to the Midwest and Rocky Mountain regions, those two regions already receive nearly all of their imports from Canada.
Source: U.S. Energy Information Administration.
Keystone XL might help move more oil away from the Midwest and Rocky Mountain regions to the Gulf Coast in order to help alleviate the glut of supply there already, but it’s unlikely that the Keystone XL will have a profound impact on the current operations in these regions. So the refineries that really care about the fate of this project are exclusively on the Gulf Coast.
| Top 10 Gulf Coast Refiners | Total Refining Capacity (Mbpd) |
| 1.) Royal Dutch Shell* | 1,520 |
| 2.) ExxonMobil | 1,406 |
| 3.) Valero (NYSE:VLO) | 1,089 |
| 4.) Phillips 66 | 738 |
| 5.) Citgo** | 590 |
| 6.) Marathon Petroleum (NYSE:MPC) | 522 |
| 7.) BP (NYSE:BP) | 460 |
| 8.) Chevron (NYSE:CVX) | 330 |
| 9.) Premcor Refining Group (private) | 290 |
| 10.) Flint Hills Resources LP*** | 289 |
Source: U.S. Energy Information Administration. * Royal Dutch Shell plc (ADR) (NYSE:RDS.A) owns 50% in a joint venture with Saudi Aramco for Motiva Enterprises and 50% of Deer Park Refining LTD. **Wholly owned by Petroleos de Venezuela S.A. ***Wholly owned by Koch Industries (private).
With the possible exception of Citgo’s and Royal Dutch Shell plc (ADR) (NYSE:RDS.A)’s refineries — which have deep ties to Venezuelan and Saudi national oil companies, respectively — these refiners will look to use the Keystone XL to replace heavy oil from other sources, such as Saudi Arabia, Mexico, and Venezuela. While we might call this North American energy independence, more importantly it provides the Gulf Coast with more options when it needs to purchase crude oil, which gives companies a better competitive pricing advantage.
