The Keystone of Successful Oil Investing

There’s big news in our little world this morning.

On Friday the State Department released its environmental impact report on the Keystone XL pipeline.

In short, the report concluded that the Keystone XL pipeline, which brings Canadian crude oil to the U.S., will have a negligible effect on climate change.

This is huge news for America’s energy future.

As we’ve covered in the past, the State Dept’s report will play a huge role in Obama’s final approval/denial of the pipeline deal. Today we’ll take a look at the latest news, and show why one geographically challenged province is in for a windfall…

To make sure we’re on the same page, the Keystone XL Pipeline is a project slated to carry 800,000 barrels of crude oil from Canada to Steele City Nebraska. From there, the oil will head south and find its way to U.S. refineries on the Gulf Coast.

“Because the northern stretch of Keystone XL, which would carry 830,000 barrels a day from Hardisty, Alberta, Canada, to Steele City, Neb., would cross a U.S. border” the LA Times reports, “it needs a so-called presidential permit from the State Department.”

For decades leading up to 2005, America’s energy future looked grim… But the tide started to change after 2005.

Long story short, this approval has been waiting in the wings for years. And most recently, president Obama has said that his (long-awaited) decision to approve/deny the pipeline will hinge on whether or not the project will increase climate change.

That’s where Friday’s report comes in to play.

According to the Bloomberg, “In its final environmental review, the U.S. State Department found the Canada-U.S. oil pipeline would not greatly increase carbon emissions because the oil sands in Alberta will be developed anyway.”

In a nutshell, this paves the way for a presidential approval. (A good thing if you ask me!)

Whether you like Canadian oil sands and shale oil development or not, it’s much better that the oil comes through the U.S. than just bypassing us all together and heading to Asia.

With the approval of Keystone XL, the U.S. will be much, much, much more removed from our dependence on Middle East oil. Frankly, it’s a joke that our president wouldn’t be honored to approve this pipeline deal. But instead he tried – with tooth and nail – to stop it.

With Friday’s environmental report, an approval is looking much more inevitable. That means more abundant, secure crude will be flowing into the pipeline arteries of America.

But, of course, there’s much more to the story!

This is all part of a fantastic turnaround story here in the U.S.

For decades leading up to 2005, America’s energy future looked grim. Crude imports from the Middle East continued to edge higher, while at the same time domestic production continued to dwindle.

More imports and less production at home? It was a horrible recipe for our country’s trade balance. Not to mention, much of that oil was coming from unstable hot zones like the Middle East, Nigeria and Venezuela. Ugh.

But the tide started to change after 2005. Whispers in the U.S. oil and gas field started getting louder. And before anyone knew it oil and gas production was heading higher here in the states. America was sitting on a huge bounty of unconventional oil and gas. Energy that was once thought to be trapped in tight rock or “shale” formations, was now coming to the surface.

U.S. ingenuity, hard work, established infrastructure and two technological breakthroughs – hydraulic fracturing and horizontal drilling – changed the game here in the U.S. Oil and gas are coming to the surface at an stunning rate – and to be sure this unexpected U.S. production is changing the game.

Add it all up and we’re in the middle innings of a great reversal.

Instead of importing OPEC oil at our Houston refineries and shipping it north to the rest of the country. We’re starting to produce much more oil and gas inland – so much so that a glut of oil was being sent to a major storage center at Cushing, OK.

With a new direction for U.S. oil, it all comes back to pipelines.

A year ago, as we reported here, the Seaway Pipeline completed a symbolic reversal. Instead of shipping oil north from Houston to Cushing – the pipeline reversed its flow and now sends 400,000 barrels per day SOUTH, from Cushing to Houston.

Another big part of America’s “new” energy direction was the southern leg of the Keystone Pipeline (noted below in the southern section of the dotted yellow line.)

Map of the Keystone Pipeline and Proposed Keystone Expansion

This month oil started flowing in this southern leg, which carries crude south from Cushing to Port Arthur, TX.

The southern leg of Keystone and the Seaway Pipeline are alleviating the glut of “stranded” oil from Cushing – they’re helping balance and utilize America’s new oil bounty.

And to be sure, it’s not just America that’s seeing booming oil and gas production, which brings us back to Friday’s State Dept. report…

Although the northern leg of the Keystone XL pipeline hasn’t been officially approved yet, the State Dept’s report all but paves the way for an Obama approval.

This is huge news for our neighbors to the north, especially Alberta, Canada where the Keystone pipeline begins.

Alberta, Canada is an energy rich province with one major drawback: it’s landlocked.

Without a diplomatic way to get its crude oil and natural gas to market the province was essentially out of luck. At one point several months ago the price for Alberta’s crude (since it was landlocked) had plummeted some $20-30/barrel lower than the price of most U.S. barrels.

That glut of energy spells opportunity.

With a pipeline approval Alberta’s budding oil sands and shale plays are bound to blossom. This is huge news for energy producers – oil sands and shale plays.

With the penultimate step for this pipeline approval in our rearview, now’s the time to look north for potential windfalls.

Friday’s report marks the next phase of North America’s energy boom.

Keep your boots muddy,

Matt Insley
for The Daily Reckoning

P.S. We’re witnessing a sea-change in America’s energy future. With more shale oil coming from the U.S. and Canada the companies that can move the crude are set for massive growth. And remember, it’s not just pipelines you should look at. In fact, one overlooked sector has been chugging along over the past 18 months. And in yesterday’s Daily Resource Hunter, I gave readers a chance to discover this under-the-radar sector first-hand. To make sure you can take full advantage of great opportunities like this, sign up for my FREE Daily Resource Hunter email edition, right here.

This article originally appeared at Daily Resource Hunter

The Daily Reckoning