Winners and losers from Keystone XL delay

Let's look at the winners and losers in Washington's decision to delay the Keystone XL pipeline. TransCanada (TRP-T) is clearly the loser. Finance minister Jim Flaherty says the delayed decision on the $7-billion pipeline until 2013 may accelerate Canada's effort to ship crude east instead of south. Pressure from Nebraska over the pipe's route over a key water source led the U.S. state department to investigate alternatives.

Routing around the aquifer would add 122-kilometres of pipe and a half-billion dollars to the price tag. TransCanda shares rose 2 percent on optimism the company will instead earmark some of that cash for share buybacks or dividend increases.

Goldman Sachs looked at two scenarios: a delay and a cancellation of the project.

• If the project is outright cancelled, earnings per share in the fiscal 2012 and 2013 years would get anywhere from a 5-percent to 10-percent boost because TransCanada's capital expenditures and financial costs would be reduced.
• If the 700-kilometre pipeline is simply delayed until after the U.S. presidential election, Goldman figures the reduced cost of financing and capital expenditures would help boost the bottom line in the near term -- but with $1.9 billion already spent on the project, the delays mean investors will lose the time value of money of the cash that would flow into the bottom line.

Enbridge (ENB-T) CEO Pat Daniel demurred when I asked him this week what a keystone delay would mean for his pipeline company. Daniel did tell me that the company would benefit -- and Goldman is quantifying that for investors. Goldman is telling clients that Keystone would have cannibalized oil volumes into the U.S. on Enbridge's main line -- and a delay or an outright cancellation of the project would pump more product through Enbridge's pipes. But with Enbridge recently implementing a tolling agreement that allows for contract renegotiation, Goldman points out there could be a "slight regulatory headwind". But on its existing pipeline and two proposed routes, Enbridge is sitting pretty.

Crude volumes from the western Canadian basin continue to rise -- and Goldman is telling clients it would be easy for the existing Alberta clipper pipe to boost capacity through low cost, high return pumping stations. Enbridge also has a Keystone XL alternative on the drawing board -- one that wouldn't be subject to the scrutiny of the U.S. State Department or presidential politics. The Wrangler line goes from Cushing, Oklahoma to the U.S. gulf coast. If Keystone isn't approved the 800,000-barrels a day pipeline could soon fill-up and give Enbridge and its joint venture partner increased pricing power when dealing with producers. But further to Finance Minister Flaherty's diplomatic reminder: Canada could simply ship more of its oil sands to more willing consumers in Asia. 

Enbridge is working on its northern gateway pipeline that would get product from the sedimentary basin out to the west coast and onto very large crude carriers destined for China, Japan and elsewhere. And if XL is kiboshed, Ottawa would have a greater incentive to diversify away from the United States.

Enbridge stock is testing its 52-week high with slowing momentum. There may be near-term support for the stock at $34 with additional technical support on the 50-day moving average at $33 to $45. Sixty percent of analysts polled by Bloomberg have a 'hold' recommendation with a consensus that the shares are already fully valued at this level.

Meantime, TransCanada fell below its support level yesterday but is back above the 200-day moving average after flirting with oversold territory. The stock hit a summertime low at $37 in early august which may provide interim assistance for the shares. Two out of three analysts have a 'buy' rating on the stock today but the consensus is there's likely little more than 3 additional dollars left in the stock price over the next year.