Canada has 173 billion barrels in proved reserves.
That puts it in the upper echelon of crude producers — in third place behind Venezuela, which has struggled to bring its resources efficiently to market, and Saudi Arabia, which controls the price of oil right now.
Much of Canada’s crude oil reserves are found in the oil sands in Alberta. And once oil prices became higher than ever (at least until recently), extraction of this oil has become economically acceptable.
As a result, Canada’s crude production has been growing at a steady clip…
As these numbers continue to grow, they will still lag the rates found in the United States for one simple reason…
And it all has to do with the exports.
Market Stops Buying it
As I’ll show you in a moment, although Canada has a tremendous amount of reserves, production has stalled not just because it is costly but also because the United States has been producing more oil than it has since 1986.
Because of the growth in U.S. production, Canada sees the writing on the wall: its biggest customer will soon stop buying.
Although the chart above shows Canada’s export volume to the United States increasing, the trend points to a squeezing effect on all U.S. imports.
As the U.S. lowers its reliance on foreign oil, Canadian crude production won’t be able to expand since 97% of the country’s oil exports go to the United States.
And as its biggest customer starts winding down its imports, Canada is going to suffer huge economic losses if something doesn’t change soon.
We’ve reported on this type of phenomenon before with Nigeria, which, as you can see above, already lost the U.S. as a customer and is scrambling to find a destination for its oil.
The same thing could happen to Canadian producers if they aren’t careful.
Voting Canada into Oblivion
For the last six years, one company in Canada has tried to alter this looming crisis, but to no avail.
TransCanada (NYSE: TRP), as you have most likely heard, has been lobbying hard for the past six years to get approval for its Keystone XL pipeline.
The goal of the pipeline is to quickly and efficiently transport bituminous oil from the oil sands in Alberta through the United States and to the Gulf Coast.
But the project has become a quagmire, weighed down by political fights, manipulation, and now increasing costs. (Once slated at $5.4 billion, the project is now estimated to cost $8 billion.)
On Tuesday, Senator Mary Landrieu of Louisiana, who faces a tough runoff election in December, pushed a Senate vote for the pipeline project in the hopes that it would save her career.
Unfortunately for her, the lame duck Senate narrowly rejected the bill, ending with a 59-41 vote, falling just one vote short of the 60 it needed to pass.
39 Democrats and two independent Senators opposed the bill and ended any chance of its passage this year.
However, after coming closer than they ever had before, the Senate looks poised to pass the bill once the next Congress officially enters office.
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An Obama Veto?
Incoming Senate majority leader Mitch McConnell told reporters after the vote, “We’ll do it next year.”
And it will most likely pass, with Republicans set to hold a majority in both chambers and a few Democratic defectors looking to help oil and gas interests in their states.
Once it does pass, the question becomes whether or not the president will sign the bill.
Many pundits speculate President Obama won’t make the bill a law so he can preserve his legacy on climate change, which is a top priority in the twilight of his final term.
But if it does pass and is signed into law, investors should be prepared.
Many uninformed traders will foolishly rush into TransCanada’s stock, but that’s not where the real gains are to be had.
Instead, you and I should look to behind-the-scenes players who stand to profit from the construction of the pipeline…
Companies that are manufacturing the pipes, erecting them, inspecting them, and designing them for the ultimate profitability.
Those are the plays we’re looking for.
In fact, I should have one for you in a few weeks once I finish my due diligence on its financial standing.
Beyond these sectors, it’s quite possible that passage of the Keystone XL could be one of those rising tides that lift all ships. And in that case, you should start building positions in midstream companies that work predominately in North America.
Again, that’s if the president approves it — which (although many doubt it) could happen if the bill is tied to one of his favored policies.
In any case, you should be ready.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
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