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Obama Administration Denies Keystone Pipeline Permit

The Obama administration on Wednesday denied the controversial Keystone XL oil pipeline proposal on the recommendation of the U.S. State Department, saying at this time it is not in the U.S. national interest to build the 1,700-mile link from Alberta, Canada to the Gulf of Mexico (GOM).

"The president concurred with the [State Department] recommendation, which was predicated on the fact that the department does not have sufficient time to obtain the information necessary to assess whether the project in its current state is in the national interest," said a State Department spokesperson, adding that the current denial does not "preclude any subsequent permit application or applications for similar projects."

After dealing with the proposal from Calgary-based TransCanada Corp. since 2008 in a "transparent, thorough and rigorous" process, the State Department concluded last November it could not make a national interest determination without more information from an additional review that would take until the first quarter of 2013. Congress subsequently provided a 60-day time limit on making the national interest determination when last Dec. 23 it passed the Temporary Payroll Tax Cut Continuation Act.

TransCanada CEO Russ Girling expressed disappointment but said the decision was not unexpected. He committed to reapplying for U.S. approvals and eventually moving forward with the project. "TransCanada expects that consideration of a renewed application will make use of the exhaustive record compiled over the past three-plus years," Girling said.

"This outcome is one of the scenarios we anticipated. While we are disappointed, TransCanada remains fully committed to the construction of Keystone XL. Plans are already under way on a number of fronts to largely maintain the construction schedule of the project. We will reapply for a presidential permit and expect a new application would be processed in an expedited manner to allow for an in-service date of late 2014."

Industry reaction was swift and highly critical of the decision to resist congressional pressure following President Obama's decision to postpone a final decision until early next year after elections in November. In the end, critics said the president put "politics over jobs" and economic recovery.

The National Association of Manufacturers said the denial of Keystone XL is "a serious blow to job creation and a major setback to energy security." And the American Chemistry Council said the decision is "puzzling and troubling" in light of President Obama's new energy strategy announced Tuesday saying he wants to enhance energy security and create jobs.

Reiterating the energy security concerns, ConocoPhillips CEO Jim Mulva told an energy conference Wednesday at the Rice University's Baker Institute that GOM refineries seeing dwindling supplies from Mexico and Venezuela will have to turn to "more distant and possibly unfriendly sources" of crude oil without the prospects of an influx of production from Canadian oilsands and U.S. Upper Midwest shale oil supplies.

"If opponents force the oil sands output to go to Asia [partially for environmental concerns about Canadian oil sands production], they will actually cause greater emissions...due to the longer transportation to market," said Mulva, speaking at the North American Energy Resources Summit at Rice.

The Obama administration maintains that current law prevents it from deciding on the C$7 billion project in light of the perceived need for additional environmental reviews of an alternate path through Nebraska to avoid its environmentally sensitive Sandhills region. The federal administration has been waiting for Nebraska to identify an alternative route that would skirt an aquifer viewed as critical by state officials.

White House spokesperson Jay Carney said earlier on Wednesday that it is a "fallacy" to think that the president would move up a decision on the pipeline before Nebraska has identified an alternate route.

Environmentalists praised the president's decision, which "recognizes that Canadian tar sands oil - bringing pollution but relatively few American jobs while exporting the oil to China and other countries - is not the future of American energy"

The statement by Daniel J. Weiss, Senior Fellow and Director of Climate Strategy at the Center for American Progress, continued, blaming "Republican congressional leaders who want to ram through a decision on the Keystone XL pipeline in 60 days for a route that hasn't even been chosen yet, without any analysis. Any attempt to prematurely force this pipeline approval ignores the damaging pipeline spills in Michigan, Montana, and elsewhere over the last few years, not to mention the inevitable increase in harmful carbon dioxide pollution."

The Industrial Energy Consumers of America, said, however, "we are strongly disappointed with President Obama's decision to withhold approval of the Keystone XL pipeline project," said "There is no excuse that this administration can provide that justifies the delay."

In November, while the Keystone project floundered, an ad hoc effort to break the bottleneck and flow expanding supplies of shale-bolstered crude oil to the GOM and world markets was moved up by about 300,000 b/d. In separate announcements plans were offered to reverse the flow of the Seaway crude oil pipeline, and a possible go-ahead was given for the Cushing, OK to the GOM southern section of the stalled Keystone XL oil pipeline.

Enterprise Products Partners LP, 50% owner of Seaway, said it would partner with Enbridge Inc., which just bought the other half from ConocoPhillips for $1.15 billion, in reversing the pipeline flow to start sending 150,000 b/d from Cushing to the Houston area in the second quarter of 2012. Enterprise backed off plans for construction of a larger pipeline, switching to partnering on a faster option at minimal cost.

At the same time last year, senior executives at TransCanada Corp. told an investors' meeting in Toronto that they might try to build a portion of the pipeline between Oklahoma and the GOM before the final decision is made on the entire C$7 billion, 1,700-mile Keystone XL oil pipeline. That leaves the ultimate goal of tapping Canadian oil sands, stalled by environmental concerns, on the sidelines. Instead the southern part of the line would transport the burgeoning supplies of shale oil coming out of the Midcontinent (see Shale Daily, Nov. 18, 2011).

Opponents viewed the president's action as the same as denying the project and all of the economic recovery advantages it allegedly carries, such as up to 20,000 new jobs. TransCanada, the backer of Keystone, maintains there are up to 13,000 onsite jobs that will be created by the 17 pipeline spreads, or construction areas, and 30 pump station work sites, along 7,000 new off-site manufacturing jobs for producing the pipe and other equipment needed.

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