3 Ways To Profit From Keystone’s Demise

by Jim Woods | January 26, 2012 3:00 pm

Last week, President Obama put the kibosh on the Keystone XL oil pipeline. The project, which was projected to carry an estimated 700,000 barrels of crude a day from Alberta’s oil sands to refineries on the U.S. Gulf of Mexico coast, promised to be both a job creator and a way to boost gasoline supplies. Thus, it would have helped keep America’s fuel costs down.

The politics of this situation are rather convoluted. The rejection was seen by most observers as a move to placate President Obama’s environmentalist base. Yet the president blamed Republicans in Congress for putting forth what he called a “rushed and arbitrary deadline” that “prevented a full assessment of the pipeline’s impact, especially the health and safety of the American people, as well as our environment.”

Politics aside, many industry analysts think the Keystone XL project is likely to receive presidential approval sometime in the first quarter of next year.

Traders, as always, can see the Keystone XL situation as an opportunity to make money.

Here are three ways to profit from the (at least temporary) killing of the pipeline project.

Enbridge Energy Management

The oil being produced in the tar sands of Canada still needs to get to refineries in the South, and the rejection of the Keystone XL pipeline doesn’t change that. The fact is, oil is going to get where it needs to go one way or another. One of the “anothers” to use an existing pipeline, such as the one run by Enbridge Energy Management (NYSE:EEQ[1]). Because Enbridge’s pipeline already exists, no additional governmental approval is needed to expand. All Enbridge has to do is ramp up its ability to handle the increased tar-sands transport. If the company can do this, it could mean a big boost to its bottom line — which could lead to a nice boost for those who own EEQ shares.

Railroad Stocks

Another alternative to a pipeline for getting oil from point A to point B is via railway. Railcars are less efficient than a pipeline, but in the absence of a direct route from Canada to the South, railways are just about the best alternative. Stocks such as Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B[2]), which owns rail giant Burlington Northern, Canadian National Railway (NYSE:CNI[3]) and Union Pacific (NYSE:UNP[4]) all are equipped to haul tar-sands oil that would have made its way through Keystone. And while there’s more to consider than just the potential for added revenue from tar-sands transport, a big boost to railway revenues from this renewed market is likely to be a sizable profit driver for stocks in the space.

TransCanada Corp.

The killing of Keystone could turn out to be a boom for the pipeline’s chief builder, TransCanada Corp. (NYSE:TRP[5]). According to an analysis by Goldman Sachs (NYSE:GS[6]), if TransCanada canceled the project, its EPS in 2012 and 2013 would rise by 5% to 10% due to a reduction in capital expenditures and financial costs. So short term, the lack of a pipeline will be a boon for TransCanada’s bottom line. The great thing about this situation is that TransCanada may also benefit over the long run since most analysts expect the company to get approval to build the pipeline eventually. That means it could be a case of money saved now and earnings boosted later for TRP. Traders with a little taste for the contrarian may want to check out this Keystone play for short-term profits as well as potential profits further down the pipeline.

This article originally appeared on Traders Reserve[7].

Endnotes:
  1. EEQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=EEQ
  2. BRK.B: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.B
  3. CNI: http://studio-5.financialcontent.com/investplace/quote?Symbol=CNI
  4. UNP: http://studio-5.financialcontent.com/investplace/quote?Symbol=UNP
  5. TRP: http://studio-5.financialcontent.com/investplace/quote?Symbol=TRP
  6. GS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GS
  7. Traders Reserve: http://www.tradersreserve.com/

Source URL: http://investorplace.com/2012/01/ways-to-benefit-from-scrubbed-keystone-xl-pipeline-eeq-brk-b-cni-unp-trp-gs/
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