The Keystone XL and the Northern Gateway

Written By Nick Hodge

Posted January 31, 2012

We’re all aware of the Keystone Pipeline.

It’s the $7 billion project that would send a much-needed 1.1 million barrels of crude oil per day from Canada’s oil sands to the American Heartland.

But you’re probably a bit fuzzy on what its status is.

Because of fiery political rhetoric and backroom maneuvers, it can be tough to figure out where the project stands.

I offered my no-spin take a few weeks ago, when the headline was that Obama “killed” the Pipeline, concluding:

This man has an election to win over the next ten months.

He can’t kill a pipeline that would create thousands of jobs, break a supply logjam in Oklahoma, and carry between 500,000 and 1 million barrels of secure Canadian oil to the States every single day.

It will happen… eventually.

A Tale of Two Pipelines

In addition to the Keystone XL, Canada also has plans to build the $5.5 billion Northern Gateway Pipeline, which would send oil to a British Columbia port for export to Asia (China).

That pipeline has a capacity of 525,000 barrels per day.

Combined with the Keystone, the two pipelines would send 1.625 million barrels per day out of Canada.

To be clear, the Canadian government wants to build both pipelines. With reserves second only to Saudi Arabia and Venezuela, it would be an economic boon to the Great White North. And Prime Minister Stephen Harper has shown he’s willing to play politics to make it happen.

After Obama’s decision two weeks ago to postpone the Keystone, Harper publicly said he was “profoundly disappointed,” and spoke of the need to “diversify” Canada’s oil industry.

That’s code for “sell it to China.”

The thing is, Enbridge’s (NYSE: ENB) Northern Gateway is facing the same environmental pressures as TransCanada’s (NYSE: TRP) Keystone.

Currently, the former project’s Joint Review Panel is canvassing public sentiment along the pipeline’s 731-mile proposed route. Already, more than 4,000 people have signed up to testify, and I’m assuming not about how much they want a pipeline in their backyard.

What’s more, together the pipelines could move 1.625 million barrels per day.

For the most recent month that data is available — October 2011 — Canada exported 47.03 million barrels, or 1.52 million barrels per day. And data from the Canadian Association of Petroleum Producers shows total production will hit 3.5 million barrels per day in 2015, 4.2 million in 2020, and 4.7 million in 2025.

So throw the politics out the window. Canada has enough to fill both pipelines.

Harper just wants to have his cake and eat it, too. And I don’t blame him.

A North American Comeback

The real story here is being buried by political spin…

It isn’t about whether the United States or China gets Canadian oil. It isn’t about environmentalism. It isn’t about Obama.

The real story here is a veritable North American oil rush.

We’re just fighting over where it will go and who will make the most money.

As I told you in my last update on this pipeline situation, oil is a global market. A fight over where a pipeline should reside doesn’t change the amount of the stuff in the ground.

Sure, the political angle will play a supporting role in this year’s U.S. election. And yes, the environmental crowd may get a “victory” by tying both pipelines up in court for a few years.

But at the end of the day, I believe both pipelines will be built.

The oil sands in Canada and the shale in the U.S. will both be fully developed.

To think otherwise is naïve.

And to get caught up in the trivialities of politics and environmentalism surrounding this development is to seriously take your eye off the ball.

There’s a reason China invested $16 billion in Canadian energy in the past two years and $6 billion in the U.S. in just the past few weeks…

A major oil production boom is underway.


Call it like you see it,

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Nick Hodge

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street’s Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor’s page.

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