President Obama’s critical comments of TransCanada Corporation (USA) (NYSE:TRP)’s Keystone XL pipeline suggest the chances of the projects’s approval are waning. But while America dithers, Canada isn’t standing by. With so many options emerging in recent months, Keystone is losing relevance.
While Keystone has been held in political purgatory, Canadian oil producers are securing access to new markets.
On Thursday, TransCanada Corporation (USA) (NYSE:TRP) gave the green-light on its Energy East pipeline which will ship Alberta crude to Quebec and New Brunswick refineries. With 1.1 million b/d of capacity, the project will single-handedly replace Keystone.
New developments have also brought the Enbridge Inc (USA) (NYSE:ENB) Northern Gateway and the Kinder Morgan TransMountain expansion proposals back on the table. Last week, the provincial premiers of Alberta and British Columbia announced that they will work together to expand oil and gas exports. It’s a huge step forward for the two provinces that are attempting to resolve their differences over bitumen pipelines to the country’s West coast. If approved, both projects would ship a combined 1.1 million b/d of Alberta crude for export to Asia.
Meanwhile Enbridge Inc (USA) (NYSE:ENB), the company responsible for shipping over two thirds of Canada’s crude exports, has been quietly expanding its pipeline system. These initiatives include eliminating bottlenecks to boost capacity in the Chicago area, twinning the Spearhead and Seaway pipelines to move more crude to the U.S. Gulf Coast, and reversing the Line 9 route to begin shipping oil to Quebec. According to the company’s estimates, these secured projects will boost capacity 50% to three million b/d by 2015.
And Canada’s options don’t end with pipelines. Rail has emerged as an important transportation method with the amount of crude moved by train tripling over the past three years.
Admitted this is a pretty rosy scenario. The optimistic case assumes every proposal is approved and new regulations don’t quash the boom in the railroad industry. That’s a bold suggestion. However, all of the points above demonstrate that Canada can find other places to ship its crude. Keystone isn’t the only game in town.
Investor implications
New pipeline capacity will have obvious benefits for Canadian upstream names like Cenovus, Imperial Oil, and Suncor. But midstream developments north of the border will have implications for American producers as well.
Take Continental Resources, Inc. (NYSE:CLR) for example. For several years now the company has posted impressive growth in the North Dakota Bakken with output growing 40% last quarter to 122,000 boe/d. But last year, all of this production slammed right into a wall of low prices. Thanks to a supply glut in the Midwest, Continental Resources, Inc. (NYSE:CLR)’s output had been selling for as much as a 15% discount relative to international crude oil benchmarks. That fiasco could repeat itself without new pipeline construction.
