Kinder Morgan Inc (NYSE:KMI) shareholders finally have a reason to smile. Just recently, Bloomberg reported that the Canadian government is likely to buy the energy company’s Trans Mountain oil pipeline. The project catapulted tremendous controversy due to political and environmental overtones. As a result of the news, KMI stock closed up nearly 1% on May 29.
Although most investors consider such a single-day move a pittance – especially compared to energy stocks – Kinder Morgan has suffered recently. On a year-to-date basis, KMI stock is down nearly 11%. This pales in comparison to several other competitors in the sector, which have seen a dramatic resurgence over the years, but the Trans Mountain oil pipeline is a big deal.
Unfortunately, the markets have been unusually punitive towards KMI stock. For instance, to start off 2015, shares opened at $37.42. By the end of that year, KMI was down to a horrifying $13.89, or a nearly 63% loss.
Some Perspective on KMI
To put this into context, Kinder Morgan rival Williams Companies Inc (NYSE:WMB) lost a comparatively tame 39% in 2015. Another fierce competitor, Enterprise Products Partners L.P. (NYSE:EPD), shed less than 26% over the same timeframe.
Put another way, Kinder Morgan shareholders will take any bit of good news. However, their sudden fortune could end up being Canada’s loss.
Although the Canadian government marketed the Trans Mountain pipeline as an opportunity to feed Asian oil demand, the project has never failed to generate controversy. Primarily, environmentalists are concerned that the pipeline sacrifices the nation’s natural beauty for purely economic concerns. Additionally, indigenous groups have sharply vocalized their opposition.
At the same time, Canadian Prime Minister Justin Trudeau felt that he couldn’t let the opportunity slide. The Trans Mountain pipeline would diversify its revenue stream away from the U.S., which is its number-one customer.
KMI Stock Wins, Canadian Taxpayers Lose
On paper, Trudeau’s decision makes perfectly logical sense. Asia desperately needs increased energy intakes. Moreover, resource-poor Japan could use another energy pathway. Currently, the Japanese are hindered with a volatile situation in the Middle East, and President Trump’s unpredictable behavior.
For the Canadians, developing the Trans Mountain pipeline would lead to increased jobs in the near-term. In the long-term, the economy will get another revenue source, and perhaps provide a bargaining chip with U.S.-related negotiations.
But the real question is, who’s going to pay for all this?
This has rankled politicians across the entire spectrum. According to the country’s Finance Minister Bill Morneau, the total cost to Canadian taxpayers is not yet determined. Which is to say, our northern neighbors should watch out. If our government can’t get anything right, I doubt their government is any better.
In addition, the pipeline’s opponents expressed dismay that the state involved itself in the first place. Conservative Leader Andrew Scheer said the following:
“This is a very, very sad day for Canada’s energy sector. The message that is being sent to the world is that in order to get a big project build in this country, the federal government has to nationalize a huge aspect of it.”
The fierce debates is probably the reason why KMI stock ultimately enjoyed a muted bullish response. Kinder Morgan shareholders must still approve the Trans Mountain agreement.
To add more fuel to the fire, while KMI stock received its modest bump-up, the Canada-centric iShares MSCI Canada Index (ETF) (NYSEARCA:EWC) fell a much more pronounced 1.5%. For the year, the EWC is down 5%.
An Ugly Situation All Around
Given all that’s transpired, it’s difficult to say if any true winners exist in this controversy.
Trudeau made the economically sound decision, but it’s costing him dearly. Progressive Canadians lament potential environmental crises, such as an oil spill. Conservatives can’t stand that a corporation, which has a fiduciary incentive to keep costs low, is superseded by big government. All hate the possible hit to taxpayers.
Even for KMI stock, I’m not really seeing a great upside. As stated previously, the bullishness was very modest. Furthermore, at today’s price, shares haven’t moved for over two years. Unfortunately, the sale of a controversial project isn’t going to do much.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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