Keystone Pipeline Is DOA: Is the Trans-Alaska Pipeline Next? by Tony Sagami, Mauldin Economics
Both houses of Congress passed legislation approving the Keystone Pipeline last week, but it’s headed for a certain Obama veto. “As we have made clear, the president will veto this bill,” said the White House.
The Keystone Pipeline, however, isn’t the only pipeline that President Obama wants to kill. Obama hasn’t vocalized his opposition, but his secret wish is to kill the Trans-Alaska pipeline.
“This administration is determined to shut down oil and gas production in Alaska’s federal areas,” warned Senator Lisa Murkowski (R-AK).
The Trans-Alaska Pipeline was completed in 1977, stretches 800 miles from Prudhoe Bay in northern Alaska to the Port of Valdez in southern Alaska, and has the capacity to transport over 2 million barrels of oil a day.
To put that 2-million-barrels number in perspective, America consumes almost 19 million barrels of oil a day, so the Trans-Alaska Pipeline has the capacity to deliver a not-insignificant 11% of our country’s oil needs.
How can Obama shut down the Trans-Alaska Pipeline? Through a combination of his executive power and existing environmental laws. Here’s the deal:
In late January, Obama announced that he will use his executive authority to designate 12 million acres in Alaska’s Arctic National Wildlife Refuge (ANWR) as “wilderness.”
On the surface, that doesn’t sound so bad. After all, who doesn’t want to preserve our pristine wilderness? However, “wilderness” also means NO DRILLING.
Northern Alaska is bursting-at-the-seams rich with oil. The Arctic Outer Continental Shelf is estimated at 27 billion barrels, ANWR is thought to have at least 28 billion more, and the National Petroleum Reserve-Alaska (designated in 1976 as a strategic petroleum stockpile) has 896 million barrels of oil!
Yet not a drop of oil is flowing from these areas.
The wilderness designation for ANWR is Obama’s long-term strategy to starve the Trans-Alaska Pipeline to death.
ANWR is the land east of the Trans-Alaska Pipeline, but Obama has already cut off the area west of the pipeline for drilling. In 2010, the Interior Department closed roughly half of the 23.5-million-acre National Petroleum Reserve-Alaska (NPRA); the area west of the pipeline.
Despite the White House taking credit for the increase in US oil production, the reality is that the Obama administration has made it harder—not easier—to drill on federal land.
That’s why the volume of oil that flows through the pipeline has slowed to 500,000 barrels a day.
If ANWR receives “wilderness” designation, oil flows will fall even more—and that is Obama’s goal. Why?
If flows fall below 300,000 barrels a day, the pipeline simply can’t operate because of all types of operational problems. Less oil means slower oil, and slower-moving oil means colder oil. And colder oil causes problems.
In short, if output drops below 300,000 barrels a day, the Trans-Alaska Pipeline will have to shut down due to flow requirements. And by congressional law, the Trans-Alaska Pipeline must be dismantled if it ceases to operate. Yup… dismantled.
If you’d like to read a more detailed analysis of the Trans-Alaska Pipeline situation, check out the detailed, free report that Gary Halbert, a longtime dear friend, wrote.
Is there an investment opportunity in this assault on Alaskan oil?
The long-term implications are disastrous, but the short-term impact (and opportunity) will be on the companies that produce/provide oil-drilling equipment.
Schlumberger, Halliburton, Baker Hughes, Helmerich & Payne, Weatherford International, and other oil-services companies will be headed for even more pain; betting against their stocks through either short selling or oil-service sector put options should pay off in a big way.
Oil-services companies, however, could be the second most attractive target for put options right now. What’s number one? Major exporters, which have significant earnings risk due to the stronger dollar. Click here to learn about the company with the biggest risk of all—I recently featured it in an alert to my Rational Bear readers.
Tony Sagami
30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.
