How to Profit From a Keystone XL Pipeline Approval

The Keystone Pipeline has been the subject of much debate for several years now, as this large-scale project has stirred up quite a bit of controversy. The pipeline would be a major step toward reducing America’s dependence on foreign oil, but many are worried about the costs that would be associated with its construction. The proposed pipeline extensions pass through a number of sensitive environments and have therefore been met with extreme opposition. As an investor however, chances are that both a president Romney or Obama will do their best to green light the project come 2013, leading room to make some interesting additions to your portfolio [for more news on the energy industry subscribe to our free newsletter].

The Pipeline Extension

The Keystong XL Pipeline is the name of the project that seeks to create 1,179 miles of pipeline stretching from Hardisty, Alberta to Steele City, Nebraska. Eventually the pipeline, which is slated to cost around $7 billion, will look to extend from Cushing, Oklahoma to the Gulf, creating a major opportunity for both investors and our nation alike. The extensions were proposed in 2008 and have been entangled in a political battle ever since. The project is being headed by TransCanada, who sees the line being fully operational in 2015 and also sees pipes crossing the U.S./Canada border in the first quarter of 2013.

Let’s start with the positives that would come out of an approval for this pipeline. First, the pipeline will create a $20 billion private sector investment in the U.S. economy at no cost to the American taxpayers (or so TransCanada says). The pipeline will create about 20,000 construction and manufacturing jobs and will generate over $585 million in new taxes for the states along the pipeline’s designated route. The project will also pay more than $5.2 billion in property taxes throughout the operating life of the pipeline, bringing in big revenues for states that could certainly use the extra cash. But while all of that sounds good on the surface, there are a number of drawbacks to this project [see also 25 Ways To Invest In Crude Oil].

First and foremost the pipeline’s original projected route was slated to pass through Sand Hills in Nebraska, an area made up of delicate wetlands and rich soil. Politicians and citizens alike were outraged by the proposal, forcing the firm to come up with alternative routes, of which TransCanada has 14. No matter which direction the pipeline decides to take, it will almost certainly have to pass through the Ogallala Aquifer, which is among the largest in the world. The underground water deposit provides drinking water to the middle third of the country, and any kind of contamination could lead to catastrophic results. The proposed extension has actually done something that once seemed impossible in our country – united both political parties to an issue that they could finally agree on, as politicans from all around Nebraska viciously opposed the original plans.

For the time being, the project is on hold, as President Obama rejected the plan until further environmental studies were done, and will re-assess the project in early 2013 (or Mitt Romney will). Unfortunately, an upcoming election means that Obama will tread lightly on such a controversial issue, so it is unlikely that there will be any major developments until the next president is chosen [see also Why Jim Rogers Thinks You Should Buy Oil].

How To Profit

The pipeline is specifically designed to transport bituminous sands (oil sands), a relatively new energy source that has only been popularized in recent years as technologies have allowed for more efficient use of the resource. There are a wide variety of companies and funds to help you gain exposure to oil sands as well as those that could profit from this project being approved. It should be noted that Mitt Romney has been relatively open about his approval of the project and would likely get it going early in his presidency. Obama also has touted the project, but has a bigger concern on environmental impacts, so if he were to win the election a full approval may take some extra time.

  • TransCanada (TRP): The most obvious choice would be to invest in the company that is actually running the XL project. TRP is a utilities firm based in Calgary. It operates in three segments: natural gas pipelines, oil pipelines, and energy. As a stock TRP has a market cap of $32 billion and trades over 350,000 times each day. It also pays out a handsome dividend of nearly 4%. TRP has been trending higher for the last few years as it has gained nearly 31% since January of 2011 [see also Bargain Shopping In Oil and Gas Stocks].
  • Suncor Energy (SU): Another Canadian-based firm, Suncor is heavily involved with the Athabasca oil sands, a deposit that holds 1.7 trillion barrels of bitumen (not pure crude). If the pipeline is completed, Suncor’s ability to export their resources will significantly jump, boosting bottom line revenues. The stock has a market cap of $51 billion and trades nearly 4 million times every day. SU offers a nice yield of 1.6% for its shareholders.
  • Sustainable North American Oil Sands ETF (SNDS): This one-of-a-kind ETF invests in companies that have their hands in Canada’s massive oil sands deposits. The fund launched just a few months ago, but has created a stir among traders as there is nothing quite like it on the market. Currently, SNDS has just 1.1 million in assets, but is trading more than 6,500 shares each day, an encouraging figure given how young the fund it.

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Disclosure: No positions at time of writing.

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Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

7 Responses to “How to Profit From a Keystone XL Pipeline Approval”

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  2. [...] the year 2020. One of his biggest policies will focus on fast-tracking the Keystone XL Pipeline, a controversial project that has the potential to bring a significant amount of oil sands into the country from [...]

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  4. [...] like gold, natural gas, and crude oil are undoubtedly the first that come to mind. But timber has a compelling investment thesis that has roped in a number of individuals and institutions over the [...]

  5. [...] TransCanada is probably best-known for the Keystone Pipeline project that has caused quite a controversy among politicians all over the US and Canada. The firm is an energy infrastructure company and is currently one of the biggest names in oil sands. The firm currently pays out a nice dividend yield of 3.9% with a payout ratio of 80%. Currently, quarterly growth is lagging, but keep a close eye on this stock as any news concerning a green light of the Keystone XL project will be big news for this security [see also How to Profit From a Keystone XL Pipeline Approval]. [...]

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