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Obama Says No to Keystone XL Oil Pipeline

TransCanada Corp.'s big, controversial Keystone XL oil pipeline project, which has inspired endless political and environmental debate, was rejected Friday by the Obama administration. The U.S. State Department decided the seven-year, multi-billion-dollar proposal was not in the U.S. national interest.

Amid 11th-hour maneuvering by TransCanada and its opponents (see Shale DailyNov. 3), the president brought to a seeming close a long energy political battle in an announcement at the White House with Vice President Joe Biden and Secretary of State John Kerry at his side.

Republicans in Congress, the petroleum industry and TransCanada reacted swiftly with various levels of disappointment, resolve and political finger-pointing regarding the rejection of the proposed $8 billion, 1,700-mile pipeline project that a year earlier came within one vote of gaining approval from Congress in a highly partisan Senate vote (see Shale DailyNov. 19, 2014).

While newly elected U.S. House Speaker Paul Ryan (R-WI) called the president's action "sickening," TransCanada CEO Russ Girling said the company and its oil shippers "remain absolutely committed to building this important energy infrastructure project" and will review their options to potentially file a new application.

American Petroleum Institute CEO Jack Gerard called the Obama administration's rejection of Keystone XL "ironic" following the proposed agreement with Iran that will allow that nation to bring its considerable crude oil supplies back onto the global market "while refusing to give our closest ally, Canada, access to U.S. refineries." Girard predicted that the decision will cost thousands of new U.S. jobs, calling the rejection "politics at its worst."

The possible adverse implications for Canada and its oilsands were downplayed by consulting firm Wood Mackenzie (WoodMac), though the rejection comes at a bad time for Alberta's heavy oil producers, who raised concerns recently about takeaway capacity as projects representing 485,000 b/d in pipeline capacity have been delayed. Uncertainty will grow after 2020, putting more pressure on other new projects (east and west) that would provide more takeaway in Canada, WoodMac said.

"We expect Canada to increase heavy oil exports to the U.S. Gulf Coast by rail and pipe," WoodMac said, adding that Alberta has 700,000 b/d in rail transport capacity.

For his part, Obama said the controversial project had attained "an overinflated role in our political discourse," becoming a campaign issue for both political parties. He said this obscured the fact that the project was neither a "silver bullet" for the economy, nor was it a potential "climate disaster" as alleged by various environmental opposition groups.

U.S. Sen. Lisa Murkowski (R-AS), chair of the Energy and Natural Resources Committee, called the president's decision "poorly made and deeply cynical," contending that it was not based on facts. "It sends a deeply negative signal to all who want to invest in America," Murkowski said.

TransCanada's Girling said the project has the support of both American and Canadian workers, and noted that because of their support a pipeline will eventually be built. Meanwhile, the Sierra Club issued a statement calling the president's action courageous and celebrating the decision as a victory for U.S. environmental groups' multi-year opposition, focused on Nebraska, along the proposed route that has changed several times over the years (see Shale DailyJan. 9, 2013).

The head of the Laborers' International Union of North America, Terry O'Sullivan, strongly criticized the president for his decision, calling it "one more indication of an utter disdain and disregard for salt-of-the-earth, middle class working American." He accused Obama of practicing dirty politics.

In regard to environmental impacts, the consulting/research firm IHS Inc. said the decision to reject the northern leg of the Keystone XL pipeline project "will have no material impact on greenhouse gas emissions" because oilsands production in western Canada does not hinge on any one infrastructure project.

After TransCanada's request this week for a "pause" in the application to allow time for a state regulatory review of the pipeline route in Nebraska was quickly rejected by the State Department, speculation inside the Washington, DC, Beltway was that a decision by the president was imminent. A strong supporter of the project, Sen John Hoeven (R-ND) called it ironic that after years of delay the decision appeared to be accelerated just at the time TransCanada asked for more time.

This was the second rejection in the past four years by the Obama administration. In January 2012 Keystone XL was rejected because the State Department said it didn't have enough time to obtain sufficient information to make a determination on the national interest question, and TransCanada subsequently re-applied for a presidential cross border permit (see Shale DailyJan. 19, 2012).

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