Is the Keystone XL Pipeline Moving Forward?

Following closely on the heels of news that oil companies have begun investing hundreds of millions of dollars on trains and depots to move oil coming out Alberta and North Dakota, is news that the Keystone XL pipeline has passed over a significant hurdle toward construction.

While more than half the world’s oil averaged $110.13 a barrel in the fourth quarter on the New York Mercantile Exchange, and the West Texas Intermediate benchmark grade averaged $88.23 a barrel, Canada’s Western Canada Select benchmark showed $61.23 per barrel of oil-sands crude. In December, the Western Canada Select value was at a record discount to the West Texas Intermediate, with as much as a $42.50 gap between the two.

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That crude oil made oil companies salivate. Plains All American Pipeline LP (NYSE:PAA) said that more than $1 billion would be going into rail depot projects funded by companies in the oil industry. Some companies are simply buying rail terminals, as Inergy Midstream LP (NYSE:NRGM) spent $425 million to do in November, while others, like Enbridge Inc. (NYSE:ENB), are building their own terminals…

The purposes of the terminals was to increase the rate at which the oil coming out of North Dakota could flow to destinations throughout the U.S., since the current pipeline infrastructure is insufficient for current quantities. The rails are good for a quick fix, but are more expensive and less efficient than the Keystone XL pipeline would be.

Now, TransCanada Corp.’s (NYSE:TRP) Keystone XL pipeline might be a big step closer to construction, as Nebraska Governor Dave Heineman approved a new route for the pipeline through the state on Tuesday. The previous route, and much else about the pipeline, has been criticized by environmental activists, but Nebraska’s Department of Environmental Quality determined that the pipeline was mostly safe.

Next, the pipeline will face the scrutiny of the U.S. State Department and the Obama administration, which previously rejected a permit for the pipeline last year. If the pipeline is rejected, the rail industry can expect even more investment from the oil industry. If the pipeline is approved, some oil companies may feel their rail investments were hasty, as the pipeline would offer a cheaper, more efficient method for delivering great quantities of the crude oil out of Alberta.

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