Matt Insley

“32 days of higher gas prices comes at tough time” shouts a headline at CNN Money.

All told, national gas prices are up 13% in a little over a month – I’m sure you’ve seen the change in price at your local gas station, too.

But if you think that’s painful, you’ll want to keep an eye on what happened in DC this past weekend…

On Sunday, 35,000 protesters gathered in Washington D.C. to protest, of many things, the Keystone XL Pipeline decision.

This Keystone Pipeline decision, as you’ll see, is an important milestone in U.S. energy policy. If environmental interests get their way, Obama will block the increased flow of crude oil from Canada to the U.S. On the other hand, if the pipeline proposal is approved, more crude will flow from Canada to Houston’s refineries.

And while we may not be able to control the outcome of this landmark decision, we sure as heck can take a look at both sides of the argument and figure out how to play this whole situation.

First, though, let’s cover the basics.

The proposed Keystone XL pipeline expansion will bring increased amounts of Canadian crude oil to Houston’s refineries. But since the increased capacity will be crossing international borders it needs federal approval (in particular a State Department report along with president Obama’s signature.).

For years now, the Keystone Pipeline saga has been playing out like any inefficient, red-tape laden government decision would.

In January 2012 Obama officially vetoed the proposed pipeline expansion, citing questions about the environmental impact to an aquifer in Nebraska. Since then, the pipeline proposal has been slightly altered and now we’re waiting for the latest State Department report to get a feel for which way the president will lean.

Here’s a visual of what we’re talking about:

DRH_Keystone_021913

The way I see it, I’ll take all the Canadian crude we can get.

Right now the U.S. still relies heavily on oil from the Middle East and OPEC. So in lieu of more cargo ships from the Persian Gulf, a Canadian pipeline is a welcome site. Not to mention having a safe, abundant supply of crude could keep domestic prices in check if Middle East turmoil causes a supply disruption.

But I bet the 35,000 protesters that showed up at the national mall on Sunday have a different view.

Here’s the thing. Most of these anti-pipeline folks don’t know the whole story. In other words they were probably referred by a friend, a Sierra Club email, or a short essay on why the pipeline is allowing “dirty” oil into the world market.

At any rate, they got the wrong info. For some reason this crowd is looking at the pipeline decision in a vacuum. They believe a presidential veto will stop the flow of Canadian crude to market. In so doing, this will reduce the amount of dirty crude oil on the market and help reduce carbon emissions.

This, however, is NOT the case. As you and I know, economic oil will find its way to the market. And if the Canadians can produce the stuff for $60/barrel and sell it for $95, they’re going to.

An approved pipeline means that oil comes south to Houston’s refineries. A presidential veto means Canada will figure out a new plan – most likely with the word “China” attached to it.

So you see, while the protesters have a valid cause, they don’t have their facts straight. Nor did they pay attention during their Economics 101 lecture.

Whatever the case for their attendance, I vehemently disagree with their stance on the pipeline. It’s a no-brainer to approve this project, and as Byron King puts it an “energy disaster” to veto it.

Heh, and get this. According to Bloomberg protesters were coming from all over the country – a bus from Massachusetts, a train from Chicago, and plenty of other far off places.

Taking a gasoline-chugging bus to an oil pipeline protest? Yes, the irony runs thick my friend.

The point is cheap and abundant energy is an important part of America. Today, though, the pendulum has swung so far that we’re encountering pushback on the key factors that made our nation so prosperous.

Cheap, abundant energy – and unfettered capitalism – made our country what it is today. Just looking back over the past 100 years this is what made our country thrive – plus, gave us a crucial advantage in WWII.

Ugh. And here we are today with tens of thousands of people trying to block a pipeline decision that’s in our country’s best interest.

Lies Spread Faster Than The Truth

What you have to understand is that in a lot of cases – as my late grandmother used to say – the lies spread faster than the truth. When it comes to the Keystone Pipeline decision or opinions on “fracking” this is most certainly the case.

Sure, thinking the veto of a pipeline will protect polar bears is catchy, but it’s not necessarily accurate. Instead, just think that a veto of the pipeline could mean millions of barrels of crude headed to China where most of their cars don’t even have catalytic converters! With lax Chinese pollution standards I couldn’t think of a worse fate for Canada’s crude.

Switching gears a bit, just yesterday I was driving home and saw a “stop fracking now” bumper sticker on a car near my house (ha, there goes the neighborhood!) I didn’t get a chance to poll my neighbor, but I can say with near certainty that had I asked her to describe what fracking actually is she wouldn’t be able to.

In the same sense, I guarantee you a majority of the protesters in DC yesterday never got a full economic dissertation on the pipeline decision. This is the same crowd of people that would have chained themselves across a train track to get special funding for “green” energy – the same funding that went to debacles like the now-defunct Solyndra. That my friend is called getting swindled.

Again, it’s easier to spread lies than the truth. No one wants to hear about “balance sheets” and “year over year profit” instead, they want to hear (and believe) in economic solar energy.

They don’t want to hear about geophysics and geopolitics, they want to hear (and believe) about “dirty” oil – and blocking a symbolic pipeline. Indeed, people love being tricked, it’s easier that way.

Heck, I even saw this a few years back on a visit to South Africa. South Africa, if you didn’t know, has a moratorium on fracking. This was a preemptive move by the government to understand concerns with the technology before permitting it. That’s all well and good.

But what’s funny, really funny, is that when you ask the people on the street why fracking is banned you get some wild stories! The one that I heard more than once revolved around a giant telescope.

What’s a giant telescope got to do with fracking? Damned if I didn’t want to find out! Well, it turns out that someone spread the idea that seismic activity cause by fracking would disrupt this huge telescope and create blurry pictures. (This is completely unfounded by the way.)

But that’s what the oil industry is fighting, “blurry pictures of the moon.” So instead of the citizens thinking in terms of energy development and facts about ground-water safety they’re all tied up on blurry pictures of the moon!

The same goes for this pipeline decision – stories have trumped facts. So where do we go from here?

How To Profit From The Protests

Last year when president Obama vetoed the Keystone Pipeline I discussed three blue-chip ways to play the botched pipeline decision. Today with a second decision in our immediate future let’s check in on our thesis.

The key back then was that no matter which way the State Department report and presidential consent went, three energy companies were set to cash in. The list included companies that had Canadian crude production as well as a strong U.S. presence: Chevron (CVX), Exxon (XOM) and ConocoPhillips (COP).

All three companies are sporting a profit since Obama’s botched decision in January 2012. Exxon is up 7%, ConocoPhillips is up 9% and Chevron is up 12% (dividends included.) That’s solid work for these blue-chips!

The real profit multiplier, though, came in the form of a ConocoPhillips spinoff. Back in May 2012 ConocoPhillips spun off its refining business unit, Phillips 66, and gave shareholders one share of the newly formed refiner for every two shares of ConocoPhillips. Refiners had a great year. Had you held on to shares of Phillips 66 through the spinoff you’d be sitting on a 30% total gain on your ConocoPhillips position, since January 2012.

All said, our thesis is still intact. These blue-chip players are going to ride the North American energy wave higher. With production coming from Canada and the U.S. they’ll be able to keep churning revenue and paying dividends – no matter which way the pipeline decision goes.

And on a positive note, if gas prices keep heading higher these players should help us offset some of that pain at the pump… unlike the bussed in folks in D.C.

Keep your boots muddy,

Matt Insley

Original article posted on Daily Resource Hunter

Matt Insley

Matt Insley is the managing editor of The Daily Resource Hunter and now the co-editor of Real Wealth Trader and Outstanding Investments. Matt is the Agora Financial in-house specialist on commodities and natural resources. He holds a degree from the University of Maryland with a double major in Business and Environmental Economics. Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department. Over the past years he's stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.

  • stephen jacobs

    After observing 3000 killed in 9/11 and witnessing the world’s tallest skyscraper toppled in Manhatten, it doesn’t take a humanitarian and a genius to conclude that we need complete new energy plan in North America. Solar energy and wind power have failed to adequately supply the energy needs of the nation and have forced the U.S. to over-depend upon oil and to depend upon imports of expensive Middle Eastern oil during periods of energy deficiencies. These oil purchases have given money to the perpetrators of 9/11: Al Qaida and Iran and their community.

    Now by developing the heavy oil and the tar locked in the tar sand, we can free ourselves from the Middle Eastern dependency of oil. That’s the key. Then we can tell Al Qaida and Hamas, Hesbollah and the Iranians to go P-up-a-rope.

    It really is important now for President Obama now to order the U.S. government to arrest the protesters who are trying to disrupt the activities of the oil pipeline construction in Montana because construction of this pipeline is of vital importance to the national interest.

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