Obama puts Keystone pipeline on hold, decries 'rushed and arbitrary' deadline

President Obama announced Wednesday he is putting the controversial Keystone XL oil pipeline expansion project on hold, saying a decision can’t be made by the February deadline imposed by Congress. While environmental groups cheered the news, the setback is temporary and the pipeline operator says it will resubmit plans to have the pipeline running in 2014.

The decision to deny the company its permit, issued through the US State Department, is considered a political risk by the president with Republican leaders saying that preventing the pipeline – proposed to be the largest of its kind in North American – is harmful to the national interest by limiting energy security and preventing job creation.

The Obama administration was first expected to rule on the permit, sought by operator TransCanada of Alberta, Canada, by late December. However, the administration sought a one-year extension, saying a more thorough environmental assessment was needed, including further exploration of alternate routes.

Republicans in Congress, in return for their support for an extension of the payroll tax holiday, forced the new Feb. 21 deadline, a date that Mr. Obama on Wednesday called “rushed and arbitrary.”

His statement stressed the decision was not a ruling on the merits of the pipeline, but on the action of Congress, which he said, “prevented the State Department from gathering the information necessary to approve the project and protect the American people.”

“I’m disappointed that Republicans in Congress forced this decision, but it does not change my administration’s commitment to American-made energy that creates jobs and reduces our dependence on oil,” he said.

House Speaker John Boehner (R) of Ohio reacted quickly to news of Obama's decision, characterizing it as “selling out American jobs for politics” and saying TransCanada would be forced to rely further on China as a consumer of its exported oil.

“The president was given the authority to block this project only – and only – if he believes it’s not in the national interest of the United States. Is it not in the national interest to create tens of thousands of jobs here in America with private investment?” Speaker Boehner said. “The president has said he’ll do anything that he can to create jobs. Today that promise was broken.”

The Keystone XL project is far from resolved, as TransCanada is allowed to resubmit its permitting application, which the company says it will have ready by September or October.

Following Obama’s decision, the company announced it will work with the Nebraska Department of Environmental Quality to determine a possible new route to avoid running the pipeline over portions of the Ogallala Aquifer, a major source of fresh water for drinking and agriculture that runs under several states in the US heartland.

Last year, Nebraska Gov. Dave Heineman, a Republican, asked Obama to block the pipeline as outlined in its current proposal, but said he would support the project if a new route were developed to avoid such sensitive agricultural terrain.

Russ Girling, president and chief executive officer of TransCanada, said in a statement that while he disappointed with the decision, he expects the pipeline to start operations in 2014.

“Plans are already underway on a number of fronts to largely maintain the construction schedule of the project,” Mr. Girling said.

The US oil and gas industry has long been critical of the Obama administration over decisions related to permitting, starting with the moratorium on deepwater drilling that followed the 2010 oil spill in the Gulf of Mexico. In remarks given at the US Energy Association forum in Washington Wednesday, Jack Gerard, president of the American Petroleum Institute, linked the Keystone project with increased economic security.

“The US seems to lack one thing: the political will to act,” Mr. Gerard said. “When it comes to domestic resources, what we hear and what we see … are often two different things.”

As proposed, the Keystone XL pipeline was to carry diluted bitumen – an acidic crude oil derived from tar sands – from the Western Canadian Sedimentary Basin in Alberta, Canada, the largest and richest source of petroleum in North America, to refineries and distribution terminals in Nederland and Port Arthur Tex., two major crude oil marketing hubs near the Gulf coast. The pipeline, 36 inches in diameter, was designed to stretch 1,700 miles at the cost of $7 billion.

The proposal the president rejected was actually an extension of an existing pipeline that currently carries oil from Canada, across the Great Plains states and into Illinois. The two new sections would have delivered oil through South Dakota, Nebraska, Kansas, Oklahoma, and Texas.

Last year the State Department approved the proposal, but differed with TransCanada on some key issue such as estimates of the number of jobs that would be created. The company promised 22,000 new construction jobs and an additional 118,000 indirect jobs, while a State Department report estimated far less. The agency’s environmental assessment also estimated that the maximum the Keystone XL could potentially spill would be 2.8 million gallons along an area of 1.7 miles.

Environmental groups were vehement in their opposition to the pipeline, saying corrosion leads to dangerous leaks and extracting petroleum from tar sands creates more greenhouse emissions than conventional oil production. Groups representing farmers and ranchers were also largely in opposition.

Frances Beinecke, president of the National Resources Defense Council, an environmental group based in Washington, described Obama’s decision as “a triumph of truth over Big Oil’s bullying tactics and its disinformation campaign with wildly exaggerated jobs claims.”