Bringing in pleasant news for TransCanada Corporation (TRP - Free Report) , the U.S. State Department has finally green-lighted the company’s controversial Keystone XL project.
Just a month back, a U.S. federal judge, Brian Morris, issued a decree requiring the State Department to conduct a fresh environmental evaluation of the Keystone XL pipeline under the new alternative route. The judge believed that the alternative route proposed by the Nebraska Public Utilities Commission had not been properly assessed.
However, after careful review, the State Department claimed that the emerging environmental risks from the pipeline are minimal and not likely to have any major impact on the groundwater along the route, even in case of leaks and spills.
Past Challenges Galore
The $8-billion Keystone XL pipeline, with a capacity of 830,000 barrels, was designed to improve oil extraction from Alberta’s oil sands and the Bakken region in the U.S. refineries. The initial phase of the pipeline project was finished in 2011. A proposal was made to add another 1179 miles to the 2100-mile-long pipeline.
However, the proposed extension was strongly opposed by environmentalists and politicians, owing to risks involved in transporting bitumen and crude to the United States, as this might emit greenhouse gases. In November 2015, president Obama rejected TransCanada's application to construct the Keystone XL pipeline on fears that it would weaken United States’ position in the international climate change negotiations. However, in 2017, both the projects were cleared by President Trump as he was of the opinion that the development of such pipelines can revive the economy.
While the 1,172-mile Dakota Access Pipeline became fully operational in June 2017, Keystone XL has been facing regulatory obstacles, route challenges and opposition from landowners, environmentalists and Native American tribes.
Last year, TransCanada had to stall operations at the existing Keystone pipeline, following a spill of around 5,000 barrels in Marshall County, SD, highlighting the risk posed by the pipeline expansion.
It cleared a major regulatory hurdle when Nebraska commissioners approved the Keystone XL project, although on an alternative route to the one proposed by the company. The alternate route will likely balloon costs and delay the disputed pipeline project further. The alternate path calls for a 63-mile detour, and attempts to add 5 miles of pipeline along with additional transmission lines, and pumping stations.
In August 2018, the State Department was ordered to re-examine the changed route under the National Environmental Policy Act, per Morris’ ruling. Morris was of the view that under the alternative route that is likely to be longer, the pipeline would run across different countries and water bodies, posing environmental risks to indigenous communities and marine life.
Verdict Doesn't Put an End to Worries
The State Government has given its nod after re-examination, claiming that the pipeline would not lead to significant environmental concerns. Additionally, the conducted review ensures that TransCanada has an oil spill response plan ready, in case of emergency. The State Department has noted that TransCanada has a lower overall spill rate than the pipeline industry average. Nonetheless, the project has been receiving backlash from green campaigners.
The project is also facing other challenges in Nebraska, pursuant to a lawsuit currently pending before Nebraska Supreme Court, which is not expected to get resolved by this year. In the latest bid to halt the pipeline, two native American communities have sued the Trump administration, claiming that it fabricated the environmental analysis of the project.
Zacks Rank and Key Picks
Currently, TransCanada carries a Zacks Rank #3 (Hold).
Investors interested in the sector can opt for some better-ranked stocks like Petrobras (PBR - Free Report) , Atlantic Power Corporation (AT - Free Report) and RGC Resources Inc. (RGCO - Free Report) . While Petrobras and Atlantic Power sport a Zacks Rank #1 (Strong Buy), RGC Resources has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Petrobras’ top line for 2018 is likely to improve 7.5% year over year.
Atlantic Power’s 2018 earnings are expected to grow 211.1% year over year.
RGC Resources’ full-year earnings are expected to grow 5.8%.
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