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Keystone or Not, the Big Winner Is Canada

TransCanada’s (NYSE:TRP) stalled Keystone XL pipeline took another interesting twist this weekend when Speaker John Boehner said Republican lawmakers will include an approval of the pipeline in a new highway bill. The Obama Administration denied the pipeline builder a permit due to various environmental concerns and put off making a decision on the project until 2013.

A provision in the payroll-tax bill forced President Obama to make an early verdict on the project, which led to its cancellation. While the pipeline may ultimately be built, investors shouldn’t focus on the politics. The real winner in this drama is the nation that is exporting the oil: Canada.

While the U.S. bickers about the fate of Keystone, Canada has made the smart decision to move forward. Canada, which accounts for over 90% of all proven energy reserves outside of the Organization of Petroleum Exporting Countries, has put out an “open for business” sign.

Canadian Prime Minister Steven Harper is working hard to reduce his nation’s dependency on the U.S. Currently, around 99% of Canada’s crude oil exports go south, and U.S. and many Canadian officials want to shrink that share. Harper has stressed that his country’s capacity to export energy is a national priority, and he has pledged to speed regulatory approval of energy projects. In a phone call to President Obama, the Prime Minster said that “Canada will continue to work to diversify its energy exports.”

In order to diversify those exports, Canada has begun to look toward Asia as major buyer. According to a University of Calgary study, accessing emerging markets in Asia would help Canadian E&P companies realize a $13.60 a-barrel price gain by 2030. Harper will meet next month with Chinese President Hu Jintao to discuss energy export options.

Public support for Enbridge’s (NYSE:ENB) Northern Gateway pipeline has surged since the Keystone denial. The 650-mile pipeline would move oil from Alberta’s rich oil sands to British Columbia’s coast, where it would be exported to Asian markets via a new port. Overall, Canadian commodity exports to Asian-Pacific nations rose nearly 60% during 2011 and should continue to rise as the nation makes emerging Asia a priority.

Focusing On the Energy Superpower

With Prime Minister Harper and host of other officials focused on moving crude oil and natural gas to Asia, the time could be right to add some Canadian energy companies to your portfolio. Most U.S. investors are heavily underweighted in Canada despite its proximity and global standing. Both Enbridge and the broad-based Guggenheim Canadian Energy Income ETF (NYSE:ENY) could be good bets. Odds are that the Northern Gateway pipeline will be built and start exporting to Asia. The Guggenheim fund tracks 34 different firms, including Penn West Petroleum (NYSE:PWE), and it provides a great overall play in Canadian oil-sands E&P producers. The ETF yields roughly 2.8% and charges 0.65% in expenses.

Another value in the Canadian energy sector might be giant EnCana (NYSE:ECA). After spinning off its oil assets as Cenovus Energy (NYSE:CVE), the now pure natural gas player has seen its share price dwindle in the face of record low natural gas prices. However, the company has already begun construction near Kitimat, British Columbia, of an LNG export facility.

Given Canada’s new fondness for Asia and Asia’s growing appetite for LNG, EnCana could be in a great future position to provide those exports. Shares currently yield over 4%. Similarly, oil-sands-focused producer Suncor (NYSE:SU) could be a great buy. Shares of Suncor have been punished due to a writedown in the value of some of its Libyan assets and the abandonment of a $1.2 billion gas project in Syria. However, no matter which pipeline is built (Keystone or Northern Gateway), Suncor should see increased demand for its bitumen crude.

Article printed from InvestorPlace Media, https://investorplace.com/2012/01/keystone-or-not-the-big-winner-is-canada/.

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