Why Obama May Reject Keystone XL - And Who Stands To Benefit [Edit or Delete]
Jan 30, 2015 8:36 AM | about stocks:
GBNXF,
CXUSF,
CP,
CNI
As you've probably heard, the Senate passed the Keystone XL pipeline short of a majority that would enable them to override a presidential veto. Subsequently, the White House reiterated their stance that they would not be pushed to make a decision they feel falls squarely in the executive branch and would veto the bill. The State Department has set a deadline of February 2, 2015 for other federal agencies to weigh in after which, the Obama administration will have the "facts" they need to make a decision.
Obama has made clear that the decision will be made on two important criteria:
1) Keystone XL will not contribute to climate change
2) Keystone XL is deemed to be in the national interest
The State Department has concluded that the contribution to global warming is negligible at best. That being said, the EPA may weigh in considerably on this conclusion after February 2 to make their opinion known. However, for argument sake, let's assume the conclusion stands, and that Keystone XL will not contribute materially to global warming.
Where Keystone XL will likely fail is the 2nd part of the litmus test, is it in the national interest. Obama has already made clear his opinionthat the pipeline will few permanent jobs despite claims from the opposition it will create thousands of jobs. Obama has made clear his opinion that Keystone is merely a conduit to pump Canadian crude to export markets, hardly serving the national interest. However, the one argument Obama may be able to argue effectively given the recent developments in global oil is the US path to energy independence. Oil prices have been cut by over 50% in large part to the growth of US Shale over the last 5 years. The US is awash in oil. Oil inventories are at all time highs with the marginal cost of production falling with the advent of new technology. In a nutshell, Obama will simply argue we don't need "dirty oil" from the Canadian Tar Sands, we have plenty of our own. The US is on a fast track to energy independence. Yes, the US is still importing crude to meet current demands, but those imports have been shrinking as domestic production has surged.
Ten years ago, the argument was reducing dependence on rogue states for oil by tapping into an unlimited supply from your friendly neighbor to the north. Fast forward to today, and the US might rightfully argue, we don't need Canadian oil either. In a few short years, we will have enough production to meet our own needs. The facts won't dispute this as the US has virtually eclipsed Saudi Arabia as the world's largest oil producer.
Therein lies what I think Obama may use to claim "Keystone XL is not in the national interest". The oil landscape has changed dramatically in just a few short months and has given Obama a credible "out" to satisfy his Democratic base on whether the pipeline serves the national interest. Consumers are happy because they are consuming cheap oil for the time being so they won't care as much as they did just 6 months ago when gas prices were significantly higher. He clearly has been telegraphing it doesn't serve the national interest in the buildup to yesterday's senate decision.
He will likely veto the Senate bill in a few days, and then shortly thereafter, provide his final assessment of Keystone after 7 long years. Given the argument above, my take is he will "kill" the Keystone XL bill, at least for the remainder of his administration. It doesn't mean Keystone XL goes away, but likely gets delayed another 2 years until a new president is installed in the Oval Office. In the meantime, Democrats appease the environmental lobby for the time being.
If this plays out, which companies stand to benefit? Clearly, rail infrastructure companies would benefit since Canadian Tar Sands will still find a market via rail. In Canada, Gibson, Canexus, CP and CN stand to benefit substantially from such an outcome. On the flip side, heavy oil producers may see some temporary pain.