Analysts: Expect Keystone XL Pipeline Approval

By Robert Sullivan – Exclusive to Oil Investing News

Having secured the all-clear from a US Department of State (DOS) Environmental Impact Statement (EIS) on August 26th, analysts believe an expected decision by the end of the year from the White House on TransCanada Corp’s (TSE:TRP) proposed Keystone XL pipeline will grant the project a long-awaited final approval, paving the way for construction which TransCanada hopes will be wrapped up as early as late 2013.

The EIS, which concluded that “there would be no significant impacts to most resources along the proposed Project corridor”, represented one of the last major hurdles for the Keystone XL pipeline, which now will undergo a final review from the DOS to determine whether the pipeline is in the national interest. This final phase will look at broader issues including energy security and foreign policy, and involve consultations with a range of US governmental agencies, as well as discussions with the six states the pipeline is set to travel through.

In a media briefing following the decision, DOS Assistant Secretary Kerri-Ann Jones stressed that “this is not a final decision, this is not the final stamp, this is not a lean in any way toward one particular decision or another…We are at a point of neutrality.”

Analysts believe Keystone XL approval imminent after DOS decision

Consensus among many oil analysts, on the other hand, is that the Keystone XL pipeline is likely heading towards approval after overcoming a key final obstacle in the review process.

Deutsche Bank stated last week that the project would “very likely” get the required presidential permit from the DOS, while David Goldwyn, a former senior DOS official who now heads consulting firm Goldwyn Global Strategies, told Platts Energy Week shortly after the DOS decision that “the case for a pipeline is overwhelming, and [US Secretary of State Hilary Clinton] will approve it.”

When the Keystone XL pipeline does receive the anticipated go-ahead from the US government, Steven Paget, analyst at FirstEnergy Capital expects a brief rally for TransCanada’s stock, which could provide a short-term window of opportunity for investors.

Paget also notes, however, that any initial “euphoria” over the Keystone XL approval would eventually wear out, and that market fundamentals would dictate performance over the long-term.

Further bolstering the project’s prospects was an announcement from the Canadian government a week after the DOS decision, which revealed that they expected the Keystone XL pipeline to be approved once the final round of consultations concluded.

“I think that we can look forward to eventual approval by the American government,” commented Enviroment Minister Peter Kent when asked about the Keystone XL pipeline project, adding that TransCanada had “perhaps one of the best records of any pipeline operator” in North America.

The proposed expansion to the existing Keystone pipeline would increase existing capacity by over 500,000 barrels per day to Cushing, Oklahoma and provide a much-needed onwards link to refineries in Port Arthur, Texas on the US Gulf Coast.

Producers and refiners waiting on final approval

In addition to TransCanada, who will build and operate the Keystone XL expansion, a number of companies have already signed long-term binding agreements that cover up to 76 percent of the project’s initial capacity.

Chief among these players is Valero Energy Corp. (NYSE:VLO). The largest exporter of refined products from the US, Valero is contracted to take 100,000 barrels per day from the Keystone XL pipeline until 2030.

Other Port Arthur refiners who have already signed on to Keystone XL include Total S.A. (NYSE:TOT) of France, and Motiva Enterprises, a joint venture between Royal Dutch Shell (LON:RDSA) and Saudi Aramco.

Producers in the Alberta oil sands contracted to the Keystone XL expansion include Canadian Natural Resources Ltd. (TSE:CNQ), as well as Cenovus Energy Inc. (TSE:CVE), an Encana Corp. (TSE:ECA) spinoff founded in 2009.

 

Disclosure: I, Robert Sullivan, hold no direct investment interest in any company mentioned in this article.