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Leading analyst sees ‘compelling’ case for controversial Keystone XL pipeline

These are stories Report on Business is following Wednesday, Feb. 27, 2013.

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Analyst makes case for Keystone XL
One of Canada's top commodities analysts called today for approval of the controversial Keystone XL pipeline, citing a "compelling" case for why the United States should give it the green light.

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The Keystone XL pipeline, which would carry 830,000 barrels a day to the U.S. Gulf Coast, has been held up by environmental concerns, forcing TransCanada Corp. to reroute it in Nebraska and submit its plans again. High-profile demonstrations continue against the project.

"Notwithstanding the benefits of TransCanada's Keystone XL and potential expansion of Enbridge's Alberta Clipper line between Canada and the U.S. Midwest, the development of additional market outlets - both in the faster-growing Asia/Pacific market and in Central and Atlantic Canada - remains vital for the Canada's oil industry," said Patricia Mohr of Bank of Nova Scotia.

Where the United States is concerned, Ms. Mohr cited three arguments in favour of approval, including the "long-standing free-trade relationship between Canada and the United States, especially on energy," the security the U.S. would gain on the supply side, and the boost to its own infrastructure needs to move oil from North Dakota and northern Texas.

"One-third of Keystone XL pipeline capacity will actually be available for U.S. producers, whose prices are also discounted," Ms. Mohr said, referring to the hefty discount on western Canadian oil.

"With construction expected to take 18-24 months after approval, Keystone XL could be in service by late 2014 at the earliest."

Constraints on the pipeline system are a big reason for the price gap between Western Canadian Select, or WCS, and the West Texas Intermediate and Brent benchmarks. This discount is costing Canada billions.

"The Keystone XL pipeline would allow greater volumes of oil from Western Canada to reach the largest refining centre in the United States in Houston and Port Arthur, Texas (via Cushing, Oklahoma, and TransCanada's Gulf Coast project), where 'world' prices for both heavy and light oil prevail," Ms. Mohr said in her report.

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"WCS heavy oil should be priced close to similar-quality Mayan crude from Mexico – at US$101 per barrel in mid-January … instead of US$62.

Business investment projected to rise slowly
Canadian businesses plan to boost their investments by just 1.7 per cent this year, and may well rekindle the debate over "dead money" with the smallest increase since the recession.

Public and private concerns, along with the residential real estate industry, expect to spend $398.2-billion on construction, machinery and equipment this year, Statistics Canada said today in an annual survey.

"This would be the smallest increase since the economic downturn in 2009," the federal agency said, The Globe and Mail's Tavia Grant and Richard Blackwell report.

"The main contributor to the slowdown is an anticipated decline in investment reported by the mining and oil and gas extraction sector," it added.

"Declines are also anticipated in the information and cultural industries as well as in educational services. Strong increases in investment were reported in the utilities sector and in transportation and warehousing."

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Bank of Canada Governor Mark Carney has urged Canadian companies to invest, or return to shareholders, what he calls "dead money" that is sitting unused.

Of note is that spending increases by the public sector, at 5 per cent, are forecast to outpace those of the private sector, at 0.8 per cent.

Also noteworthy is that investment in the mining and energy sector is forecast to actually decline, by 2.7 per cent, in the first drop since the recession. This is largely because of a pullback in Ontario, to the tune of more than 30 per cent, and British Columbia, by almost 26 per cent. Spending in Alberta is forecast to remain flat, while Newfoundland and Labrador would see a gain of almost 83 per cent.

Investment in housing is projected to rise 0.2 per cent, which would mean the industry would represent more than 26 per cent of all spending.

"While the survey isn't a precise estimate of future spending intentions as plans may change through the year, it has been a decent barometer of overall trends in investment recently, and suggests that the Bank of Canada's hope for a 'rotation' in growth from housing to exports and business capital spending is going to face at least a one-year gap, since housing is already slowing," said chief economist Avery Shenfeld of CIBC World Markets.

Fitch warns on U.S.
One of the Big Three credit-rating agencies says time is running out for the United States to secure its triple-A status, The Globe and Mail's Kevin Carmichael reports.

London-based Fitch Rathings said today that the U.S. is on track to rack up debt that is "inconsistent" with a ranking among the dwindling number of countries deemed certain to repay their debts.

Fitch's intervention comes at a crucial time. On Friday, across-the-board spending cuts worth $85-billion (U.S.) over the remainder of the fiscal year will be set in motion unless Democratic and Republican leaders find a compromise. There are few signs an agreement is in the offing.

Cisco studies Canada
The chief executive officer of Cisco Systems Inc. appears to love Canada, so much so that he's considering investing in what he calls "the easiest place in the world to do business."

Of course, there's more at play here, primarily his failed attempts to change the U.S. government's mind on how it taxes companies and the amount of money they hold outside the country.

But, hey, if John Chambers wants to put some of that $46-billion (U.S.) to work here, it's okay with us.

Mr. Chambers said in an interview with The Financial Times that he was studying the possibility of investing part of Cisco's cash in Canada and Europe, having given up on pressing the U.S. government on double-taxing repatriated cash.

The chief of the tech giant did not say where or how the cash could be used, only that Canada and Europe would be "likely" targets and that the move could be soon, according to the business publication.

"In terms of our overall approach we're going to go wherever the start-ups are and where the governments are that really want us," Mr. Chambers, in Barcelona for a conference, told The Financial Times.

"The easiest place in the world to do business is Canada. Their prime minister gets it. They make it easy for me to invest and do acquisitions there; they have a great education program and they have a great immigration policy."

Caisse return almost 10 per cent
The Caisse de dépôt et placement du Québec posted a return of 9.6 per cent last year, boosted by a strong performance in global equity markets in the second half of 2012, The Globe and Mail's Bertrand Marotte reports.

That beat the giant fund manager's internal benchmark of 9.3 per cent and fell within the pension fund median for 2012.

Signs of economic recovery in the United States, China and some emerging markets helped equity markets close out the year on a positive note, offset by weaker Canadian stocks in the underperforming materials and energy sectors, the Caisse said today.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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