TransCanada: Filtering Through the Keystone Noise

NEW YORK (TheStreet) -- The future of TransCanada's (TRP) Keystone XL pipeline is still as uncertain as it was five years ago, but investors still have a lot to look forward to.

That is because the company has several other projects up its sleeve that will be completed before the end of the decade. Some of these projects are more than twice as large as Keystone XL. Moreover, even if Keystone XL gets rejected, the company can still profit by joining the oil-by-rail boom.

In its previous quarterly results, TransCanada reported a 28% increase in revenue and a 14% rise in comparable earnings. This is particularly impressive given the industry's average growth of just 3.1%.

The company will continue growing in the coming years as the new projects come online. No wonder Jim Cramer called it "terrific," despite all the negativity surrounding Keystone XL.

TransCanada's shares have risen by 2.8% this year and closed at $46.90 on Friday.

Earlier this month, TransCanada, Canada's second biggest pipeline company, revealed that it is planning to construct a $1.74 billion natural gas pipeline to tap into the Kitimat liquefied natural gas, or LNG, project being developed by Chevron (CVX) and Apache (APA).

The 161-mile pipeline will start from Dawson Creek and will end at Summit Lake, British Columbia. From here, it will connect with Chevron and Apache's Pacific Trail Pipeline.

For this pipeline, TransCanada will file an application with the National Energy Board in the fourth quarter. The project will become operational by early 2020. This is the company's fourth project targeting British Columbia's emerging natural gas industry.

TransCanada is commonly known due to its $5.4 billion Keystone XL project, which has been marred by political delays. Keystone XL will be a 1,179-mile pipeline that will deliver up to 830,000 barrels of crude daily from the Canadian oil sands in Alberta to the U.S. Gulf Coast. This project has been under review by the U.S State Department for more than five years, and nobody knows if it will ever get approved.

The Keystone XL pipeline can give a boost to the revenues of TransCanada and Canadian crude producers. Moreover, it can cut America's dependence on oil from Venezuela and the Middle East by 40%.

Due to the persistent delays over Keystone XL, TransCanada is mulling a costly alternative: to transport crude by rail. The company will ship oil by rail to Nebraska. From here, it will use existing pipelines to transport the crude to refineries at the Gulf Coast.

If TransCanada fails to get an approval for Keystone XL, then the company will join its peers, like Canadian Pacific Railway (CP) and Canadian National Railway (CNI), who have been benefiting from the ongoing oil-by-rail boom.

In the fourth quarter of 2013, Canada witnessed 83% year-over-year increase in oil exports from rail. Moreover, according to the Canadian Association of Petroleum Producers, in the next two years, Canada's crude shipments through rail could increase by 3.5 times to 700,000 barrels per day.

In short, TransCanada will meet the growing demand of Canadian crude from the Gulf, with or without Keystone XL. This is good news for TransCanada's investors, as well as oil sands producers, like Canadian Natural Resources (CNQ) and Suncor Energy (SU), whose future growth is underpinned by the development of Canada's oil export infrastructure.

Interestingly, despite all the hype surrounding Keystone XL, it is not TransCanada's biggest project. In an emailed statement received Friday, TransCanada has revealed that, currently, its capital expenditure backlog, which includes pipeline and power generation projects, "stands at $38 billion." Keystone XL represents less than 15% of this backlog.

The company has also said that all of these projects are "commercially secured." The pipeline projects are supported by "long-term, binding agreements with shippers" while the power generation opportunities are backed by "firm long-term power purchase agreement."

TransCanada's largest project to date is the $11 billion Energy East pipeline. For this project, TransCanada will file an application with the National Energy Board by mid-August. The company expects the review process to take 18 months.

This 2,700-mile pipeline will be North America's largest oil line, capable of transporting 1.1 million barrels of oil daily from Alberta's oil sands to refineries in Eastern Canada. So far, several energy companies, including Canadian Natural Resources, have made commitments for energy east's capacity.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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