The U.S. reaffirms support for the Keystone Pipeline Project, benefiting the Canadian producers but may hurt refinery industry

Analyst Commentary, Miller Chu: As many of you probably noticed at the pump, gasoline prices have been increasing steadily over the past year. The rising gasoline price gave the Republicans an opportunity to criticize President Obama for his denial of a permit request in January 2012 for a key leg in the Keystone XL pipeline. The Pipeline would transfer approximately 700,000 barrels of Canadian oil sands bitumen from Hardisty, Alberta to a refinery hub in Port Arthur, Texas.

President Obama has responded by affirming the White House administration welcomes the project and is in the process of approving the permit for the resubmitted application by TransCanada. The pipeline project benefits the Canadian crude oil producers as the pipeline links the Canadian supply to the growing U.S. demand. However, this benefit comes at a cost as the United States would gain significantly from the value add through refining the bitumen creating permanent jobs and economic benefits south of the border. It will be interesting to see whether the pipeline ultimately gets approved or whether this is just a political tactic for the upcoming United States elections.

Sources: Bloomberg (Mar 21), Reuters (Mar 21), Financial Post (Mar 21), New York Times (Mar 22)

Figure 1. Keystone Pipeline Project System Map

Source: TransCanada Corporation (TSX: TRP / NYSE: TRP)

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