What will a Republican House and Senate do for the Keystone XL pipeline and crude oil exports ?

The results of the mid-term elections have placed both houses of Congress under Republican control, and the market seems to be responding positively. The S&P 500 Energy sector gained 1.75% today. Reuters reported that this strong showing was likely due to the Republicans consolidating their position, saying “investors had been concerned some close races would be forced into run-offs, an outcome that could have delayed knowing who would control Congress’s upper chamber for weeks.” However, the Republicans’ decisive victory made a run-off unnecessary, avoiding potential market uncertainty.

Many investors are hoping that this new Congress will lead to faster action in the energy sector, specifically with regards to pipelines and trade agreements. TransCanada Corp. (ticker: TRP), the sole owners of the Keystone XL pipeline, saw largest post-election uptick of 3.25% on the day. Both Paul Dales, a senior U.S. economist with Capital Economics, and Bob Doll, a senior portfolio manager with Nuveen Investments, told the Wall Street Journal that they believed Republican success in the mid-term elections may lead to a harder push to approve the Keystone XL pipeline.

A serious effort to speed up the LNG export approval process was made back in May of this year. Legislation passed the U.S. House of Representatives deciding the Department of Energy would no longer issue conditional approvals of projects, and would instead decide whether an LNG export project is in the national interest following the Federal Energy Regulatory Commission environmental review. The DOE would then only have 30 days to issue a decision on whether or not they would approve a project, greatly accelerating the approval process.

In addition to moving up the Keystone XL Pipeline on the policy agenda, a Republican-led Senate and House of Representatives might also put pressure on lifting the ban on crude oil exports. Currently, there are only two U.S. companies with permission to ship lightly processed condensate internationally, but BHP Billiton Ltd (ticker: BHP) is paving the way to export its own lightly processed ultra-light U.S. crude oil “without permission from the government,” Reuters reported. BHP determined the oil meets the legal requirements for export since it is being minimally processed in distillation towers in South Texas.  Some international refiners are still uncertain about accepting such shipments. A Seoul-based refinery source told Reuters, “I don’t think the U.S. Government would like it, and even if such cargo is available, it will be hard to approach it.”

If the new Congress does decide to lift the export ban new markets would open up to U.S. oil producers. Many oil and gas companies are encouraging a repeal of the ban, citing increases in job creation and energy security.

The crude oil export ban was passed by Congress in 1975 in response to the Arab oil embargo that cut global supplies, leaving a severe oil shortage that quadrupled crude prices and created famous gas lines across the nation at a time U.S. crude production was shrinking. The shale boom—a product of horizontal drilling and hydraulic fracturing—took U.S. crude oil production to new highs and in the past five years turned the U.S. into the world’s number one oil producer.

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Analyst Commentary

Baird Energy Daily Dirt "11/05/2014"

Stronger start in store following midterm elections. U.S. markets pointed to a higher open in early morning indications after the string of Republican victories in yesterday’s midterm elections. Following the election results, the Republicans have regained control of the Senate while keeping the House, a first in eight years. Dow, S&P 500, and Nasdaq futures were all higher, at +74 points, +10 points, and +23 points, respectively. The market optimism carried over to the U.S. dollar as well, hitting new seven-year highs against the yen at ¥114.30/USD. October ADP employment figures came in line with consensus at +230,000 private sector additions. A couple other data releases are on tap for this morning, with October ISM non-manufacturing data due at 10 a.m. EST, where markets are expecting a reading of 58.4% vs. last month’s 58.6%, and weekly EIA inventory data at 10:30 a.m. EST. Notable pre-market stocks in focus include Time Warner (TWX), +4% following an earnings beat, Activision Blizzard (ATVI), +5% as a lowered 4Q sales outlook was overshadowed by an earnings beat, and TripAdvisor (TRIP), -13% on weaker-than-expected results. At last check, crude futures remained mixed, with WTI +0.4% to $77.47 and Brent -0.5% to $82.40, while natural gas was +2.0% to $4.21.  

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