The Keystone Project Is Approaching D-Day


As major news networks broadcast a presidential debate seemingly every other week, the American people head towards the last year of Barack Obama's presidency, departing from the White House after eight years that some will call dreadful and some will call great.  Regardless of your opinion on his politics, one thing is quite clear: Obama isn't satisfied with a legacy of killing Bin Laden and passing healthcare reform.  The 44th president wants history books to remember him as more and more, greater and greater, worthy of a place on Mt Rushmore next to Teddy and Abe.  One such icon of Obama's legacy may be the Keystone XL pipe, a petroleum lifeline that would sync the tar sands of Alberta with the refineries of the Great Plains states.  Much like the Trans-Pacific Partnership, the Keystone XL project has raised no shortage of hot air across international borders and has the very real potential to change the energy market.  It's just not clear which direction Obama will go.

Coming In And Going Out

The Canadian economy has positively taken it on the chin as the price of petroleum dropped.  While the Great White North largely escaped the global financial collapse thanks to the surging price of oil -- only ten nations export more petroleum -- the resulting downturn in the oil market has pushed our neighbors to the north into their first recession in nearly a decade.  The recent Canadian parliamentary elections, ushering in Justin Trudeau as Prime Minister, were decided by the failure of former Prime Minister Stephen Harper to diversify the economy and avoid the oil bubble bursting.  Canada unsurprisingly sells the overwhelming majority of their oil to the United States, making them the largest lobbyist for the completion of the Keystone XL project.  TransCanada Corp, the nation's premiere oil driller, has put up the finances for the Keystone Project and promises that it will provide anywhere from three thousand to thirty thousand full time jobs (while true, Canadians and not Americans will be getting the paychecks).  TransCanada wants to move nearly one million barrels of oil per day through the pipeline, offering a variety of advantages compared to the current system of trains and trucks -- trains especially being risky, as there were as many train derailments in 2013 as there were in the previous four decades.  The Keystone XL project has its predictable supporters and detractors in Congress: Democrats cry out for environmental concerns while Republicans insist on unfettered access to energy.  Partisan politics stops at the door of the US State Department (at least, in principle), as they will have to review and approve the XL pipeline before Obama can spend a few taxpayer cents to put ink to paper and sign it into law.

Holding Up

While lots of Americans want access to Canadian oil, not all energy companies want Keystone to supply their competition.  Southern energy firms, most notably Exxon Mobil, compete with Canadian companies like TransCanada by importing oil from Mexico, Venezuela, and the Gulf.  While such Latin America supplies have been under increasing scrutiny for both their availability and consistency, armies of lobbyists in Washington have declared the intrusion of Canadian oil as a threat to domestic companies.  This puts an interesting (and entertaining) juxtaposition in place by which both sides have to convince politicians that one source of foreign oil will create American jobs while another will erode them.  Republican leadership wanted to get Keystone through Congress as soon as they took control of both Senate and House, but Republican leadership can only tread so far while the White House is occupied by a Democrat.  Hilary Clinton has officially taken an anti-Keystone stance as she runs for president; each Republican candidate for president has claimed they would pass the bill into law.  Obama remains oddly quiet on the issue, claiming to be uncertain whether or not TransCanada will deliver all that it promises at the same time that he spouts rhetoric about changing the nation's obsolete energy policy.  One small-time player in the fight, Nebraska governor Dave Heineman, may decide it all.  The pipeline dead-ends in the Husker state and while a Nebraska Supreme Court decision approved eminent domain seizure of property to build the pipeline, a series of lawsuits against TransCanada state that the construction will violate the state constitution.

Ticking Time Bombs

Keystone is heading towards a major fork the road as the Department of State has to review the project line-by-line and penny-by-penny.  TransCanada has asked the State Department to suspend the review of the Keystone pipeline for one very important reason: to wait to see if an oil-friendly Republican president takes Obama's seat in 2016.  The decision has to be made before Congress adjourns for the year in mid-December.  Should the State Department push the review through, Keystone could get the third veto of Obama's tenure.  That will send the prices of oil up; a denial will send oil down once the liquid gold starts flowing across the border.

  • The Takeaway: Keystone will have a critical impact on the price of oil, whether it passes or whether it dies in the bureaucratic grind.  An approval sends the price down as Canadian crude overflows into US markets without trade issues or increased cost to get the product to the pumps.  Should the Keystone go the way of the dodo, the price of crude will rise.  Investors need to pay close attention to the survival or failure of the largest energy decision of the past decade and either buy oil for delivery or short-sell it to make a profit.
  • Natural gas won't be much affected by Keystone one way or another.  However, a slight bump may occur if Keystone dies, as energy consumers go for a cheaper alternative as the price of oil rises.  Consider buying both energy commodities in the event of a veto.

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