The United States is poised to be a major player in global oil production in the coming decades.
One big problem with that trajectory is the ban on crude oil exports, which companies get around now by refining crude and then exporting it.
It is possible that Russian President Putin’s annexation of Crimea, and saber rattling against Ukraine, could push the U.S. to approve oil exports.
The whole U.S. oil sector would stand to gain from this, and it could strengthen the basis for TransCanada’s Keystone XL project.
Since the 1970s, the United States has kept a strict ban on the export of crude oil products: the reasons, at the time, were related to national security (the Arab oil embargo, which sent shockwaves through the global oil industry).
The global security and energy environment have all changed drastically in subsequent years, and there is now a variety of new oil extraction techniques available and being put into use, and a glut in pipeline capacity across the continent. Domestic oil production is at a 26-year high, and producers cannot get their supplies to refiners fast enough.
Cracks in the edifice of the U.S. crude export ban appeared just last week, when Enbridge (NYSE:ENB) announced that it obtained a limited license to re-export Canadian oil from the United States. It was the first company to publicly confirm its right to do this.
In this case, the deal will be done through its U.S. subsidiary, Tidal Energy Marketing, which will push out "limited quantities" of Canadian crude from a U.S. port, Enbridge told Reuters. (They did not say which port.)
Enbridge's re-export license will likely be followed by other companies, and could be an entree to more thoroughgoing changes in the crude export regime.
While the national security environment drove the decision to ban exports of crude in the first place, it's possible that now, it is precisely the global security environment that may make the United States consider that position.
In testimony before the House Foreign Affairs Subcommittee on Terrorism, Nonproliferation, and Trade, Deborah Gordon, a senior associate in the energy and climate program at the Carnegie Endowment for International Peace, said: "As one of the world's fastest-growing oil producers, the United States has the opportunity and responsibility to be a global leader in the energy sector."
She added: "A strong, balanced energy policy is needed to guide decision making in ways that satisfy the energy needs of American consumers, strengthen the U.S. economy, protect the climate, and enhance energy security."
The security issue comes up because of the position the U.S. finds itself in: being almost parts equal consumer and producer, as illustrated in this graph.
That means "We won't want to either hoard or hand over all of our resources without first establishing policy goals and strategies."
But if the United States wants to be a "global leader," it may have to act in the face of Russia's provocations.
Putin's Saber Rattling
According to The New York Times, Russia's massive oil sector could be "on the table" for sanctions after President Vladimir Putin's annexation of Crimea.
The Times says: "As the heart of the Russian economy, the energy sector - led by state oil companies like Gazprom, Lukoil and Rosneft - would be a natural focus for pressure from the United States and its allies. Oil and petroleum products represent more than two-thirds of Russian export earnings, and they finance just over half of the federal budget."
As shown in this graph, crude exports have becoming an increasingly big factor for Russia in the last decade, and particularly the last five years:
It's an entirely conceivable scenario that, if Russian oil companies come under export sanctions as Putin continues to step up his bellicose behavior, the U.S. government may seriously consider lifting the ban on crude oil exports. That would be big news for U.S. domestic oil producers, who would suddenly have a world market for their product.
TransCanada's (NYSE:TRP) Pipe
The Keystone XL pipeline, which would move Canadian oil sands through the heartland of the United States, could be a key beneficiary in that case.
The Keystone XL project has been in play for five years, stuck in review with the Obama administration and beleaguered by environmental protests who say that it will contribute to global warming.
A report by a contractor for the State Department, however, concluded in February that the construction of the pipeline would not, in fact, contribute further to global warming, because the oil sands will make it to market one way or the other.
The Keystone XL, which will move 830,000 barrels per day, could seriously help with moving supply of crude onto the world market. All this means that Enbridge and TransCanada are companies to watch as the situation continues to progress.
Disclosure: I am long TRP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.