While everyone is focused on President Donald Trump’s healthcare bill, the administration’s oil pipeline initiative is expected to push forward as the U.S. State Department approves the permit needed to proceed with the construction of the Canada-to-U.S. Keystone XL oil pipeline, fueling a pop in master limited partnerships and related exchange traded funds.
The JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) and the ALPS Alerian MLP ETF (NYSEArca: AMLP), the two largest MLP-related exchange traded products, gained 0.8% and 0.7% Thursday, respectively.
The State Department’s will approve a permit by Monday, which could mark the beginning of process of a lengthy and complicated approval process from state regulators and legal challenges, Reuters reports.
Tom Shannon, the State Department’s undersecretary for political affairs, is expected to approve the cross-border permit for TransCanada Corp’s (NYSE: TRP) pipeline on or before Monday,
Former President Barack Obama blocked the proposal, arguing that the pipeline would not reduce fuel prices for Americans and would only contribute to global warming emissions, but Trump supports Keystone and signed an executive order days after he took office to expand on its construction. The Monday deadline is the end of a 60-day period that Trump ordered back in January when he first signed the executive order.
“If people want to build pipelines in the United States, they should use American steel and they should build it and create it right here,” Trump said at a Monday rally in Louisville, Kentucky. “That pipeline is going to be manufactured right here.”
The Keystone pipeline is expected to funnel over 800,000 barrels=per-day of heavy crude from Canada’s oil sands to U.S. refineries and ports along the Gulf of Mexico.
Nick Loris, an energy and environment researcher at the Heritage Foundation, said an approval would “reestablish some certainty and sanity to a permitting process that was hijacked by political pandering.”
MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around. Consequently, MLPs have historically shown a weaker correlation to energy prices over longer periods as MLPs act more like energy toll roads, profiting on the volume of oil moving through their pipelines.
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