After the geopolitical tensions between Russia and the West
over the fate of a referendum in the Ukrainian region of Crimea,
another entrant into domestic politics has added more spice to
the run-up to this year's Senate elections. The proposed Keystone
XL oil pipeline expansion has got both Democrats and Republicans
fired up. The choice between Republican pragmatism and greener
Democrats is a tough call for the incumbent White House.
The Keystone XL pipeline, if approved, would connect the oil
sands of Alberta to the US Gulf. Proponents of the project cite
job creation and economic benefits, while detractors point at
environmental costs as well as the dangers associated with
pipelines. The construction phase would generate more than 40,000
temporary jobs but fewer than 100 permanent positions after the
pipeline is put in place. Critics have also pointed out that if a
pipeline extension is not permitted, the U.S. would have to rely
more on foreign sources like Venezuela.
The pipeline tussle is actually part of the ongoing proxy war
between the Democrats and Republicans. With Republicans holding
sway over the House of Representatives, a Democratic Senate is of
utmost importance to President Obama. Republicans need to gain
six seats to take control of the Senate.
Regardless of whether or not the pipeline is approved by
President Obama, there is busy trade between the Western Canadian
Select (WCS) hub and the U.S. Gulf Coast. Most of this capacity
is moving by accident-prone rail route.
However, the Obama administration's focus on clean energy, at a
time when the domestic economy has just about started to
turnaround, has repeatedly come under fire from Republicans. The
apprehension about wrinkles in the economy is also shared by us
as the Federal Reserve indicated a possible hike in key lending
rates sooner than expected.
The Republicans, along with a cross section of Democrats, are
pushing for approval of the pipeline which they feel would pump
the U.S. economy with multi-millions in revenues. They also
advocate that the pipeline would drag down U.S. energy costs and
trim the energy import bill.
While the political impasse over Keystone XL deepens, we remain
apprehensive about necessary approvals for the pipeline project.
Let's look at some companies whose fortunes are closely tied to
the political game of Keystone.
San Antonio, Texas-based
Valero Energy Corporation
) is the first name that comes to mind. The Zacks Rank #1 (Strong
Buy) company is slated to benefit immensely as a key customer of
the Keystone XL Pipeline. Our bullishness stems from the
company's refiners in the Gulf which would see its margins
skyrocket once the tide of crude is shifted to Canada from dearer
Further in Dec 2013, the company came out with an initial public
offering for its logistics master limited partnership (MLP) -
Valero Energy Partners LP
). The Zacks Rank #3 (Hold) MLP enabled Valero to monetize its
existing infrastructure, and would also offer a favorable
financing option for future logistics projects.
The spin-off was a master's stroke by the company for it holds
the option of acquiring 15% of the pipeline. In case the deal is
approved, the tax advantages alone, we feel, will have another
surefire winner in our ranks.
Apart from Valero, the world's largest publicly traded energy
) is another stock we will keep our eyes peeled. The Zacks Rank
#3 (Hold) energy giant's significant refining presence in the
Gulf stands to clock northward margins once the flow of Canadian
sour crude rises. We feel that even if the spread between WSC and
WTI returns to a more historical range, the company would still
be able to boost its refining margins.
ExxonMobil also holds an approximately 70% stake in Canadian
oil sands producer
). Imperial's Kearl project oil sands mine in Alberta is
producing approximately 110,000 barrels per day (bpd). With
company estimates taking the tally to 345,000 bpd by 2020, we
feel this could well improve margins of the duo in the future.
ENBRIDGE INC (ENB): Free Stock Analysis
IMPERIAL OIL LT (IMO): Free Stock Analysis
TRANSCDA CORP (TRP): Free Stock Analysis
VALERO ENERGY (VLO): Free Stock Analysis
VALERO EGY PTNR (VLP): Free Stock Analysis
EXXON MOBIL CRP (XOM): Free Stock Analysis
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Our focus would also be on leading energy transportation and
). The company recently received approval from Canada's pipeline
regulator, National Energy Board (NEB), for flow reversal and
expansion of its Line 9B between Westover, Ontario and Montreal,
Quebec. Combined with the previously approved project to reverse
Line 9A across Sarnia, Ontario and Westover, this project will
enable the delivery of North American crude oil to Ontario and
Quebec based refineries. The reversal and expansion are expected
to be in service by the fourth quarter of 2014.
For investors with high-risk appetite we would suggest
). This Zacks Rank #5 (Strong Sell) is now out of investors focus
owing to political rumblings over the pipeline. However, any
positive development over Keystone could turn out to be a bonanza
for investors. This is due to the simple fact that TransCanada
would be the company building the pipeline, which would run up to
1,179 miles and carry up to 830,000 barrels of oil per day.
The Keystone project seems to be the sword of Damocles for
Obama's climate change plan. As Obama battles Republican majority
House of Representatives, the only solace is the wafer thin
majority of Democrats in the Senate. However, any political
misstep on his part may well give the Republicans the needed half
a dozen seats in the Senate, ending the Democratic majority there
If this happens, it would bring a fair share of opposition to
Obama's greener climate agenda as the White House looks toward
the next round of climate talks in 2015.