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Will TransCanada's Keystone Pipeline See the Light of Day?

Zacks Equity Research
ONE Gas (OGS) reports strong Q1 results, courtesy of new rates, colder-than-normal weather and customer growth.

Bringing in pleasant news for TransCanada Corporation TRP, Donald Trump issued a new presidential permit in an attempt to kick-start the much-delayed Keystone XL project. While the decision was criticized by environmentalists, the industry players have lauded the move of permitting this significant pipeline project amid infrastructural woes in Canada and the United States. Indeed, this provides a breather after the delays of Enbridge’s ENB Line 3 project and Trans Mountain pipeline. Pipeline pinch and uncertain regulatory environment were slowing down the pace of oil sands development in Canada, with many supermajors like Shell RDS.A and ConocoPhillips COP jettisoning their stakes in the same.

The Keystone XL pipeline permit would not only create jobs, but also boost the economy as well as energy security. It is believed to provide the much-needed respite from takeaway constraints in the safest and most efficient manner.

Past Challenges Galore

The $8-billion Keystone XL pipeline, with a capacity of 830,000 barrels, was designed to improve oil extraction from Alberta’s oil sands and the Bakken region. The initial phase of the pipeline project was completed in 2011. A proposal was made to add another 1179 miles to the 2100-mile-long pipeline.

The proposed extension was strongly opposed by environmentalists and politicians, owing to the risk of emitting greenhouse gases in transporting bitumen and crude to the United States. In November 2015, president Obama rejected TransCanada's application to construct the Keystone XL pipeline on fears that it would weaken United States’ position in international climate change negotiations. However, in 2017, the project was cleared by President Trump as he was of the opinion that the development of such pipelines can revive the economy.

The pipeline cleared a major regulatory hurdle in November 2017 when Nebraska commissioners approved the Keystone XL project, although on an alternative route to the one proposed by the company. The alternate route will likely balloon costs and further delay the disputed pipeline project. The alternate path calls for a 63-mile detour, and attempts to add 5 miles of pipeline along with additional transmission lines, and pumping stations.

Last November, U.S. federal judge Brian Morris stalled the pre-construction work on Keystone and issued a decree to conduct a fresh environmental evaluation of the pipeline. Morris was of the view that under the alternative route that is likely to be longer, the pipeline would run across different countries and water bodies, posing environmental risks to indigenous communities and marine life. The decision was also upheld by the Ninth U.S. Circuit Court of Appeals.

Can the Permit Put an End to All Worries?

Well, the recent presidential permit replaces the one granted in 2017 and attempts to remove the roadblock related to the pipeline’s construction. The move is likely to boost the development of the project, which will transport tar sands from Canada to the U.S. Gulf Coast.  

Notably, a spokesman from the White House has stated: “Specifically, this permit reinforces, as should have been clear all along, that the presidential permit is indeed an exercise of presidential authority that is not subject to judicial reviews under the Administrative Procedure Act”.

While Trump’s clearance should have eliminated all the uncertainties associated with the Keystone project, the green-campaigners are still very much against the pipeline’s construction, and have vowed to continue the legal fights and prospects. Although the presidential permit seeks to bring the 10-year environment review to closure, we believe that the project is still likely to face hurdles.

The project continues to face challenges in Nebraska, pursuant to a lawsuit currently pending before the state’s Supreme Court. Further, TransCanada needs various water permits in South Dakota. Needless to say, there’s bound to be opposition from the environmentalists. Hence, while the move has paved way for commencing the pipeline’s preliminary work, we believe that the Zacks Rank #3 (Hold) company needs to overcome a few other challenges that might complicate the construction of this hotly contested pipeline. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
TransCanada Corporation (TRP) : Free Stock Analysis Report
 
Enbridge Inc (ENB) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
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