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Canada's Oil Sands Falter

Brian Hicks

Written By Brian Hicks

Posted September 2, 2014

Canada has a huge problem.

They have practically zero trade diversification in the energy sector, and because the U.S. buys pretty much all of Canada’s oil, their economy could stagnate as we rely less on imported crude.

And Canada’s government and oil producers are desperately looking for an alternative buyer for their oil sands bituminous crude oil.

The most daunting part of this for Canada has been the opposition to various pipeline projects that would allow oil producers a more direct avenue to ports where their oil could be exported. Three major projects have seen delays and staunch opposition…

Of course, TransCanada’s (NYSE: TRP) Keystone XL is the most famous one, as it would travel over our northern border and slice the U.S. in half on its way to the Gulf Coast.

But as you know President Obama has continually delayed a final approval for the project that has pitted energy sector lobbyists against environmental consultants in Washington.

And although another major project, the Northern Gateway pipeline, was approved by Canada’s government in June, over 200 conditions were added to the proposal. This created a much more expensive, debt-ridden project that will take many years to manifest.

And the latest blow to Canada’s export hopes is the Trans Mountain Pipeline Project.


Owned and operated by the various Kinder Morgan (NYSE: KMI) subsidiaries, the Trans Mountain Pipeline system has been in operation since the 1950s, but now that Kinder Morgan wants to expand the pipeline to bring oil sands to the pacific, many parties are voicing opposition.

Among those are the government in Vancouver, who wants to be the greenest city in the world by 2020, and several Native populations who say that the pipeline will affect their tribal lands and the delicate ecosystems where fish and wildlife reign.

Amid the scrutiny of these various attempts by Canada to expand the buyers of their crude oil, there lies a problem…

Although many of the people fighting against these projects want to preserve their lands and heritage, or want to meet goals set by their constituents, blocking these pipelines will enable more movement of crude by rail.

And crude by rail has had it’s own deadly problems as the North American energy renaissance has hit full stride.

Even if these pipelines are blocked or delayed so long that they no longer make economic sense, I have my doubts that producers in Canada’s oil sands will stop drilling. Instead they will use rail, truck, and any other possible means to ship their product.

Which means that the hazardous rail transports will continue, and the cost of oil sands crude will remain high.

So if you’re an investor in the oil sands, it’s probably a smart move to transition your portfolio away from these hazardous and expensive projects and into a more secure energy space.

A good place to look is the Eagle Ford where there is no shortage of infrastructure and ports to bring crude oil and gas to market.

Until Next Time,
Alex Martinelli

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