A Puzzling Pipeline Protest

 | Aug 04, 2012 | 2:45 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

trp

,

enb

,

psx

,

sun

The Canadians have been warning that, when it comes to oil, they intend to develop and export as much as possible. If the U.S. doesn't want it, others will, and Canada is ready to answer the markets. But it turns out that the U.S. does want Canada's oil -- and more North American pipelines are planned.

TransCanada (TRP) has already built its Keystone Pipeline, and it's been moving oil from Alberta to Midwest and Cushing Oklahoma markets since June 2010. The Keystone Pipeline has been so successful that TransCanada wants to supersize it by adding and extending the existing system. The supersized project is called the Keystone XL (for extra-long and extra-large), and only one link amid that project has been controversial.

Not to be outdone, Enbridge (ENB) plans to move Alberta and other oil through Canada, the Midwest and New England, to terminate in Portland, Maine. One critical link is the privately owned Portland-Montreal Pipe Line (PMPL). Up until now, ships have unloaded crude in Portland so it could be transported directly to refineries in Montreal. PMPL not only provides shippers with a cost-effective shortcut, but it has also provided Canada with energy security, particularly during World War II.

Also linked to Montreal's refineries is Enbridge's pipeline system. That system connects Alberta to the U.S., back up to Ontario and Quebec, to terminate in Montreal. The U.S. portion of Enbridge's pipelines traverse portions of North Dakota, the Midwest and New York. It also delivers oil to Oklahoma (Cushing) and Texas refineries.

By reversing directional flows of some pipelines and connecting them to the Enbridge system, the company has ensured that crude oil can flow to Portland for export. The biggest customer for Portland would likely be East Coast refiners which, up until recently, had been importing Brent-priced oil. When the price difference between Brent and West Texas Intermediate (WTI) were negligible, this arrangement worked. But when a price spread developed, it was no longer economically sound to import Brent. Several East Coast refineries suffered as a result, and this is why refineries owned by Phillips 66 (PSX), Sunoco (SUN) and other mid-Atlantic refiners were struggling, scaled back operations and sold assets.

The reversal of pipeline flows presents an opportunity to link pipeline systems and replace Brent with Canadian oil. That simple change will provide the East Coast with energy security, lower-cost crude, jobs and a tax base.

Of course, there are vocal groups opposed to Enbridge's plans, and most of those groups are active in New England. The protester's argument seems to be that the East Coast shouldn't use Canadian oil because it's dirty, and that Enbridge pipelines have a history of oil spills.

The protesters' primary issue seems to be that Enbridge's pipeline system transports oil with a high carbon content. Yet they've had no problem importing high-carbon oil from Venezuela. Nor do they worry about burning oil to heat their homes, businesses and government centers.

It turns out that not all of the oil in Enbridge's system comes from Alberta. Enbridge's pipeline system is also connected to North Dakota's Bakken fields. The oil delivered to Portland's proposed export terminal would be a combination of Canadian, Bakken and other oils.

One of the biggest oil markets in the U.S. is New England, and today most of the region's homes, offices and government centers are heated with oil. Up until now, New Englanders have been indifferent as to the source of their heating oil.

If New England really wants clean energy, its residents should consider developing aggressive programs to lower both their collective carbon footprint and energy costs. One obvious solution would be to substitute New England's addiction to heating oil with cleaner, cheaper and energy independent natural gas.

Of course, a number of new natural gas distribution systems would need development. These systems would require substantial capital investments. But the private sector is willing to provide all the capital necessary to build, own and operate distribution systems; it needn't cost taxpayers a dime.

Enbridge's plans are helping North America reach its goals of energy independence, energy security and energy economics, and it appears the protesters' arguments do not address the greater good for the nation. If these folks would consider high-impact low-cost solutions, such as substituting natural gas for heating oil, everyone would win.

Columnist Conversations

So far, this one has held the pullback to the key low. You can have a stop either below the pullback low at 3...
The price action in Netflix (NFLX) over most of this year has formed a large ascending triangle on the weekly ...
With shares off 57 cents to $200.14, the investor sells 100,000 Dec 155 puts on the ETF at 30 cents and bought...
XOM is beginning to look quite vulnerable to a downside break. The stock spent the entire month of Augus...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.