The Trans Mountain pipeline continues to make progress, as this week the National Energy Board approved a request to resume construction at two terminals in Burnaby, B.C.
Although the Edmonton terminal is still waiting for approval, this is a step in the right direction for a pipeline that’s been stalled for a long time. And while it certainly won’t put an end to the opposition of it and protests of the pipeline, it certainly gives it a lot more traction. Last year, construction on the pipeline failed to see any real progress before the Federal Courts stopped the project.
Earlier this year, the Trans Mountain got approval to move forward, but appeals could result in another interruption. The pipeline is a big test for the Canadian oil and gas industry; if it’s able to be completed, it could give investors some much-needed confidence in a sector that’s taken a beating over the years.
One stock that could see a big benefit from this is Enbridge (TSX: ENB)(NYSE: ENB), which has had no shortage of issues relating to pipelines and getting them approved, not only in Canada but south of the border as well.
Positive results by the company have been insufficient to get the stock going, and even though it hit the $50 mark earlier this year, it has failed to stay above that threshold for any sustained period of time. Without more investor confidence in the industry, that’s also not likely to change anytime soon.
A key reason why companies have scaled back capital spending in the industry hasn’t been just to cut costs and improve their financials; it’s because projects have a hard time getting off the ground. And these are costly expenditures; if they end up going nowhere, they could jeopardize a company’s financial stability.
Could a change in government be the solution?
As much as the government wants to balance the needs of environmentalists and indigenous groups, it also needs to be more transparent with oil and gas companies so that expectations can be clear. One of the frustrations for companies moving pipeline projects forward has been with goalposts being moved and new conditions needing to be satisfied.
That’s also why there could be some bullishness that returns to the industry if we see a different government in place after the upcoming federal election, as it could provide much more support to companies like Enbridge and those that are trying to grow and improve the industry.
Ultimately, the demand for oil and gas is not going away anytime soon, and companies are making efforts to be more environmentally safe. However, without support from the government, it’s going to be a tough sell to investors that the industry is a good investment today.
Bottom line
Despite the uncertainty, Enbridge stock could be an appealing buy. Not only does its low share price offer investors a better-than-normal yield, but it also provides more potential upside for the stock as well. Should the day come when all the hurdles for the Trans Mountain are cleared, it could be the tipping point that sends Enbridge and other oil and gas stocks soaring.
