Keystone pipeline, not a simple political picture

[Meadbh]

Or we could export it to Asia.

Why B.C., Alberta are ending their pipeline standoff - Canada - CBC News

 

[2B]

Canada is (or will be) building new refineries and that will aid in them processing more of their own supplies.

I haven't heard of anything substantial. Everything I've heard about is targeted towards getting the oil into a form it will pump easily.

 

[2B]

Or we could export it to Asia.

Why B.C., Alberta are ending their pipeline standoff - Canada - CBC News

And I can't see why Canada wouldn't do that. China is more than happy to take advantage of the available resources. They are busily buying up South American production now.

If the goal of the US was to increase it's energy security and reduce costs, the Keystone Pipeline would already be in operation. It's safe to say that other factors are in play.

 

[aja8888]

Or we could export it to Asia.

Why B.C., Alberta are ending their pipeline standoff - Canada - CBC News

When I was working on that project as a consultant to Enbridge in 2007(?), if I remember correctly, the big issue at the time was dealing with Indian tribes and their request for a piece of the pie for allowing the pipeline to cross their lands.

It will be good for the Canadian economy to build/complete that line and create a lot of jobs and revenues for the participants.

 

[Meadbh]

When I was working on that project as a consultant to Enbridge in 2007(?), if I remember correctly, the big issue at the time was dealing with Indian tribes and their request for a piece of the pie for allowing the pipeline to cross their lands.

It will be good for the Canadian economy to build/complete that line and create a lot of jobs and revenues for the participants.

Yes, provided that environmental safeguards are in place. It's probably safer to transport oil via pipeline than by rail anyhow. But there is a lot of NIMBY to overcome no matter which way it goes.

 

[aja8888]

Yes, provided that environmental safeguards are in place. It's probably safer to transport oil via pipeline than by rail anyhow. But there is a lot of NIMBY to overcome no matter which way it goes.

Yes, we were there to conduct an environmental assessment. Canada's environmental laws and requirements differ greatly between provinces. Kind of like state laws here, but overseen by government law.

 

[explanade]

And they make it up on volume? Ridiculous (unless there's a government subsidy involved, ala ethanol).

Well it wouldn't make sense globally but for Canada, it's a lot of money.

Maybe they use natural gas generated electricity and heat to extract, since natural gas is cheaper than oil.

 

[clifp]

Oh cool I love experts*, if any of you want to hazard a guess as to companies that would be winners and loser if the northern portion of the Keystone was built I'd be interested. I also promise to say nothing bad if your predictions turn out badly, and praise your brilliance if they are right.


I'll start
Loser: Berkshire, BRKB Burlington Northern is owned by Buffett and it is a significant source of revenue, hauling oil has been a real profitably business for the railway.

I own the following related stocks are they winners or losers?
Kinder Morgan (KMP) The largest pipeline company is Keystone good bad for them.
Magellan Midstream Partners MMP? operates in the region
Buckeye Partners pipelines BPL are primarily in the midwest and northeast
Crosstex Energy XTXI and Devon (DVN) These two firms are merging lots of pipelines and operations in Texas and Louisiana. Primarily a natural gas distribution and processing.

*Expert anybody who know more than twice as much as I do about a subject.

 

[Danmar]

And I can't see why Canada wouldn't do that. China is more than happy to take advantage of the available resources. They are busily buying up South American production now.

If the goal of the US was to increase it's energy security and reduce costs, the Keystone Pipeline would already be in operation. It's safe to say that other factors are in play.

Envireonmentalists and "First Nations" are holding the thing up to ransom. Doubtful at this point even though the rational is obvious.

 

[aja8888]

Oh cool I love experts*, if any of you want to hazard a guess as to companies that would be winners and loser if the northern portion of the Keystone was built I'd be interested. I also promise to say nothing bad if your predictions turn out badly, and praise your brilliance if they are right.


I'll start
Loser: Berkshire, BRKB Burlington Northern is owned by Buffett and it is a significant source of revenue, hauling oil has been a real profitably business for the railway.

I own the following related stocks are they winners or losers?
Kinder Morgan (KMP) The largest pipeline company is Keystone good bad for them.
Magellan Midstream Partners MMP? operates in the region
Buckeye Partners pipelines BPL are primarily in the midwest and northeast
Crosstex Energy XTXI and Devon (DVN) These two firms are merging lots of pipelines and operations in Texas and Louisiana. Primarily a natural gas distribution and processing.

*Expert anybody who know more than twice as much as I do about a subject.

I am an engineer and own stocks in my IRA portfolio. Whatever stock I usually buy falls in price immediately so I am not an authority in the game. Although I feel I have a special power over the market and can cause a drop in any stock just by me purchasing it.

However, I do own KMP, EPD and MMP in my IRA and have for years. (Schwab does the K-1 tax reporting for me free within the IRA). Midstream companies that have solid balance sheets and can cover return of capital to unit holders are favorable to own, IMHO. Or, its not your fancy, you can buy one of several EFTs specializing in MLPs, like the Alerian. Or you can buy Kinder Morgan (the company, not the MLP version).

I would caution anyone interested in MLPs to shy away from those that are solely in production of hydrocarbons and not in regulated transportation of liquids and gases. These companies rely on the price of the commodity to support operations and that can fluctuate wildly, and so can their production.

As far as corporations involved in energy development and production, EOG, XOM and CHV are safe bets for the long run. (where's my disclaimer?)

 

[Ed_The_Gypsy]

Canada is (or will be) building new refineries and that will aid in them processing more of their own supplies.

I don't think so. There was talk several years ago about building something as simple as an upgrader (which reduces viscosity to be able to pump the bitumen through a pipeline and sell it to refineries), but it cost too much. Some existing facilities are being debottlenecked but no new refineries are in the works. One popular step is for a Canadian producer like Husky to partner with a refiner south of the border. It will be a long time before a new refinery will be built anywhere in North America--if ever (my opinion).

 

[Ed_The_Gypsy]

Canada will continue to expand bitumen production from the oil sands, no matter what.

They are trying to build a pipeline west to the Pacific so they can sell it to the Chinese but there public resistance to this in British Columbia and I think this unlikely. An existing (natural gas, IIRC) pipeline is being reversed to send bitumen to the East Coast. Bitumen is being transported by rail which is demonstrably more dangerous than a pipeline, but it will continue anyway.

Not approving the XL pipeline will not stop oil from getting to market. It will only prevent the US from benefiting from it.

 

[aja8888]

I don't think so. There was talk several years ago about building something as simple as an upgrader (which reduces viscosity to be able to pump the bitumen through a pipeline and sell it to refineries), but it cost too much. Some existing facilities are being debottlenecked but no new refineries are in the works. One popular step is for a Canadian producer like Husky to partner with a refiner south of the border. It will be a long time before a new refinery will be built anywhere in North America--if ever (my opinion).

Our company does work on site selection and permitting for new facilities. No real big (throughput wise) refineries have been built in N.A. many years, but we have been working with several companies on development plans for new refinery complexes. This effort changes from hot to cold from time to time. Right now, the latest interest in permitting and plant completion timelines is for gas to liquids plants and refinery expansions.

Your opinion on it being a long time before a new refinery being built in N.A. is a popular one and the biggest bottlenecks for that happening are obtaining air emissions and other permits and guessing the price of crude and refined products out 5-7 years in the future. The last major refinery built in the U.S. was Marathon's Garyville, Louisiana one in 1977. ARCO built one in Cherry Point, Washington just before that (I worked there briefly). These were 100,000+ BBL units and have been expanded. There were several small (less than 30,000 BBL) refineries built in the U.S. in the last 20 years.

While N.A. seems to be OK with refining capacity (thanks to less refined product demand), at some point in the future, this may change and our need for additional capacity will be there. Not sure how this will be managed, though.

 

[Redbugdave]

My thinking...building a refinery is maybe a billion dollar enterprise? A long term investment. That's a lot of money, maybe comparable to the electric company building another nuclear reactor for electricity. I think it is wise for the companies to not build more refineries. For them, that keeps profits up. No need for competition when profits can be amicably shared as they seem to do, now.

 

[haha]

Not approving the XL pipeline will not stop oil from getting to market. It will only prevent the US from benefiting from it.

True, but this will keep a major and vocal administration constituency happy. And we all know that this is more important.

Ha

 

[2B]

My thinking...building a refinery is maybe a billion dollar enterprise? A long term investment. That's a lot of money, maybe comparable to the electric company building another nuclear reactor for electricity. I think it is wise for the companies to not build more refineries. For them, that keeps profits up. No need for competition when profits can be amicably shared as they seem to do, now.

A major refinery would be well over a billion. It would depend on the crude feed, capacity and product mix. It would involve many integrated operating units each depending on other units operating smoothly.

Sharing profits amicably? Princing is determined by supply and demand. Profits depend on operating costs (including crude) and selling price. The refining business produces commodity fuels - gasoline, diesel, jet fuel, fuel oil and sometimes others. People will not stay loyal to a specific brand or gas station location for a few cents difference in price. Refiners spend a great deal of time and money attempting to optimize their crude purchases with refining operations and expected demand. Nobody sits around deciding how much everybody in the business is going to make this month.

 

[haha]

A major refinery would be well over a billion. It would depend on the crude feed, capacity and product mix. It would involve many integrated operating units each depending on other units operating smoothly.

Sharing profits amicably? Princing is determined by supply and demand. Profits depend on operating costs (including crude) and selling price. The refining business produces commodity fuels - gasoline, diesel, jet fuel, fuel oil and sometimes others. People will not stay loyal to a specific brand or gas station location for a few cents difference in price. Refiners spend a great deal of time and money attempting to optimize their crude purchases with refining operations and expected demand. Nobody sits around deciding how much everybody in the business is going to make this month.

+1. I have a friend who has had well paid but non-business employment his whole life. The crazy ideas he has about those evil capitalist cabals remind me of the most fevered Mother Jones articles of the 70s.

Ha

 

[explanade]

Not approving the XL pipeline will not stop oil from getting to market. It will only prevent the US from benefiting from it.

So the US would pay more for oil and gas? It seems one of the promises is that it would lower prices.

But aren't prices determined by global supply and demand, not local supply and demand?


Regarding refining capacity, I heard that the US already exports a lot of refined products to other countries already. So maybe that's why there hasn't been new refineries built?

That along with NIMBY and environmental concerns.

 

[2B]

So the US would pay more for oil and gas? It seems one of the promises is that it would lower prices.

But aren't prices determined by global supply and demand, not local supply and demand?


Regarding refining capacity, I heard that the US already exports a lot of refined products to other countries already. So maybe that's why there hasn't been new refineries built?

That along with NIMBY and environmental concerns.

Global supply and demand are the major factor but the ability to move crude oil efficiently between suppliers and the refineries also contributes to lower costs. Crude in Canada can compete using the Keystone Pipeline on the Gulf Coast. That would probably reduce the price of Mexican and SA crudes.

Increasing the supplies to any given local market can reduce the costs there. Sending Canadian crude to China has less of an effect in the US market.

Various refineries sell products to Europe and some European refineries sell into the US market. It varies depending on local demand and pricing.

 

[ERD50]

+1. I have a friend who has had well paid but non-business employment his whole life. The crazy ideas he has about those evil capitalist cabals remind me of the most fevered Mother Jones articles of the 70s.

Ha

I've run into a few people like that. One a friend of mine, one on an older forum I used to frequent.

On the forum, this guy was ranting back a few years ago when gas hit $4/gallon. He'd say "Now that they know they can charge $4 and people will just keep buying it - what's next? $5, 6$,...." and then he'd just go ballistic about the evil capitalists...

He didn't seem to get my satire, when I said something like " Sure, one day in the limo to work, the CEO of Exon said to the driver - James, I just had a brilliant idea, why don't we charge $4 a gallon, we'll make a fortune!"

My friend forwarded that stupid email about boycotting certain gas stations, which would supposedly 'force' them to lower their price. Well, at least he seemed to understand my little Econ 101 lesson when I explained it to him (total demand did not change, supply is now limited, prices would go UP if you could actually pull this off!). But then he retaliated - but when the prices go up, why does the station need to raise prices on the gas they already have in their tanks! There oughta be a law! For the same reason the price of a stock goes up when there is news that they anticipate higher earnings. I think that one went over his head though. Oh well, he really just wanted to rant anyhow!

-ERD50

 

[Ronstar]

I used to think this thing was probably about environmentalists vs oilmen or maybe donkeys vs elephants (so to speak). But this Business Week article seems to indicate it's a lot about different foreign interests (Canada, Mexico, even Venezuela) and domestic US interests. And then there are oil exploration interests vs refiners. Some quotes for this Keystone Pipeline's Gulf Coast Leg Will Soon Be Delivering Oil - Businessweek


Seems a confusing picture to me.

It's a confusing picture to me as well. I worked on pipelines through the 80's, and it seems to me that environmentalists are more against pipelines today than they were 30 years ago. But today's construction is much safer and far more sensitive to environmental concerns than that of the 80's. So maybe the environmentalists aren't really holding up the project. Maybe our politicians are simply trying to broker the best political/financial deal that they can.

 

[haha]

I worked on pipelines through the 80's, and it seems to me that environmentalists are more against pipelines today than they were 30 years ago. But today's construction is much safer and far more sensitive to environmental concerns than that of the 80's. So maybe the environmentalists aren't really holding up the project. Maybe our politicians are simply trying to broker the best political/financial deal that they can.

Environmentalism is a fad like other fads. Sometimes it is strong, sometimes less so. But mere facts will always play a small part in it. People, including environmentalists usually have their own limited set of "facts " that they will recognize.

Ha

 

[Ronstar]

Environmentalism is a fad like other fads. Sometimes it I strong, sometimes less so. But mere facts will always play a small part in it. People, including environmentalists usually have their own set of "facts " that they will recognize.

Ha

True - parties tend to develop their own "facts" fairly easily when issues aren't crystal clear.

 

[explanade]

It's a confusing picture to me as well. I worked on pipelines through the 80's, and it seems to me that environmentalists are more against pipelines today than they were 30 years ago. But today's construction is much safer and far more sensitive to environmental concerns than that of the 80's. So maybe the environmentalists aren't really holding up the project. Maybe our politicians are simply trying to broker the best political/financial deal that they can.

I don't think the concern is for the pipelines themselves as much as extracting more carbon-emitting energy sources.

The POV is that some of this kind of oil should be left in the ground because to extract it is to continue the dependence on oil, delaying the pursuit of renewable sources.

Not to mention produce more carbon emissions.

 

[Lsbcal]

Maybe we can vier towards the investment implications. Is there any reason one should overweight the energy sector in one's portfolio?

I think I'm pretty close to the total market benchmark for energy which according to M* is something like 11%.