TransCanada Corporation’s TRP share price tumbled over 5% on Nov 6 after the Obama administration rejected the company’s Keystone XL pipeline cross-border permit application.
The 2016 election is posing major hurdles for energy majors as more presidential contenders are seen upholding the issue of climate change as an election strategy.
Differences about the merits of the pipeline between the Democrats and Republicans have existed since the project began seven years ago. Democrats have not been in favor of the project, citing its potentially destructive impact on the environment and also the fact that its economic benefits are yet unproven.
The supporters of the pipeline, however, are pushing for approval as they feel that the project would generate multi-millions in revenues and create plenty of jobs in the U.S. They also advocate that the pipeline would lower oil transportation costs and provide a breather for oil firms that have been hampered by the prolonged softness in crude pricing. Also, the project has found favor with the Republicans owing to its potential for job creation and energy independence.
The Keystone XL oil pipeline is designed to be the major carrier of tar sands oil into the refineries of the U.S. Gulf of Mexico. Tar sand oil extraction and refining processes demand significant amount of energy and are responsible for considerable carbon dioxide emission.
Regardless of whether the cross-border permit is issued in the future, there is ample trade between the Western Canadian Select (WCS) hub and the U.S. Gulf Coast. Currently, most of this capacity is being moved by rail.
Energy East pipeline is another major project that is being developed by TransCanada to carry western crude of 1.1 million barrels per day to Canada’s East Coast. However, this pipeline is also facing antagonism from environmentalists. The arguments for rejecting Keystone XL are more applicable on Energy East as it will carry more oil and hence, poses a heightened risk associated with transporting oil through tankers on the east coast of Canada.
TransCanada announced its intention to go on pressing for the sanction of the Keystone pipeline from the U.S. authorities. But the investors have stressed that they would like the company to focus more on a controversial all-Canadian alternative.
The newly elected Liberal government in Canada has repeatedly stated that it is willing to support domestic pipelines like Energy East, subject to adequate buy-ins from local communities.
TransCanada currently carries a Zacks Rank #3 (Hold).
Some better-ranked players in the energy sector are FutureFuel Corp. FF, Paragon Offshore plc PGN and Seadrill Partners L.P SDLP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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