TransCanada's (TRP) Keystone XL Project Faces Uncertainty
Zacks Investment Research | Nov 19, 2017 09:35PM ET
North American pipeline operator, TransCanada Corp (TO:TRP) is awaiting a federal ruling for its Keystone extension project. The project has been facing delays for the last nine years and now its future depends on the Nebraska Public Service Commission's verdict. TransCanada’s proposed route for the extension project would pass through most of Nebraska and some parts of Montana and South Dakota until it reaches the Steele City, NE. The commission will decide for the part of the pipeline which is in Nebraska.
Recently, the company had to stall operations at the existing Keystone pipeline, following a spill of around 5,000 barrels in Marshall County, SD. Although the leakage is a shot in the arm for the environmentalists opposing the pipeline's construction in Nebraska, the official decision will depend on the pipeline's importance and not the recent incident and the environmental risks.
Importance of the Keystone Extension Project
The $8 billion XL extension of 1,179 miles will transport around 830,000 barrels of crude oil a day from Hardisty, Alberta to a junction in Steele City, NE. The pipeline will ultimately reach Gulf of Mexico refineries. The extension project holds strong financial incentive for the company, believe several analysts.
Western Canadian crude producers primarily use the train route to move their oil, which is costlier than movement through a pipeline. Completion of this project is expected to reduce crude shipment prices for producers and enhance their bottom line. TransCanada held open season bidding for the pipeline, which ended on Oct 26. Although the results of the open season are yet to be published, the company said that the result is encouraging.
Moreover, the refineries in Texas are expected to witness difficulties due to a decline in production in Mexico and political instability in Venezuela.
Completion of the project will reduce the risk in supplies of the Texas refineries.
Possible Verdicts
Favorable: Although the pipeline faced objection from the Obama administration in 2015, Donald Trump summoned the project as per his energy regulations. If the verdict is in favor of TransCanada, it will have to decide on the project's advancement.
It may also have to face fresh round of opposition, mainly from environmentalists.
Unfavorable: If the verdict turns out to be unfavorable, TransCanada can challenge the judgment in court. It will again add to the delay.
Alternate approval: Nebraska regulators can approve the project but ask for an alternate route for the pipeline. Per the company, the proposed route is optimal and most efficient. Hence, this verdict can compound uncertainties surrounding the pipeline.
Price Performance
TransCanada has gained 8.4% year to date against 6.1% fall of its Original post
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