Obama Plugs the Keystone XL Pipeline

Despite its having already taken up three years of study, the long-ago proposed construction of the Keystone XL oil pipeline that would transport crude from Canada to the Gulf of Mexico, on Wednesday  was nixed by President Barack Obama. His rationale: A deadline recently imposed by the Congress didn't permit sufficient time for a full review of the project's effects.

While the president has allowed for the submission of a new application relating to the project -- which is being spearheaded by TransCanada Corp. (NYS: TRP) -- administration officials also said that a new application would necessitate a fresh environmental review. As such, it would also set off yet another round of battles between two of Obama's key constituencies: environmentalists, who strongly oppose the building of the line, and unions, who covet the jobs that would be created by its construction.

By way of Robin Hood's barn
As my Foolish colleague Dan Dzombak noted in mid-2011, without the addition of the new capacity to the current Keystone, "oil from Canada must take a winding road from the oil sands through Minneapolis or Wyoming to the refineries on the Gulf Coast." The Keystone XL would foster a more direct route through Montana, South Dakota, and Nebraska prior to connecting with an expansion line at the industry's major hub at Cushing, Okla., and eventually moving on to the host of refineries on the Gulf Coast.

Under the current approach, oil from Alberta is more difficult to ship expeditiously from north of the border  than would be the case with construction of the pipeline. In addition to citizens of both the U.S. and Canada, the negative effects of the administration's approach will be felt by the likes of Suncor (NYS: SU) , Chevron (NYS: CVX) , Royal Dutch Shell (NYS: RDS.B) , and even China's Sinopec (NYS: SNP) , all of which, along with numerous other companies, are involved in one way or another in extracting crude from Canada's oil sands.

In addition to the lengthy consideration it has received since it was first proposed,  the project has lately been the subject of increased consternation between the administration and Republicans in the Congress.  In November, the U.S. State Department, which had been expected to render a decision on the project by year's end, extended its deadline until 2013. (Can you say "post-election"?) Later, however, Republicans were successful in pushing for a quicker ruling as part of the agreement to extend payroll tax cuts. Hence the president's contention that his administration hadn't been accorded sufficient time to render a knowledgeable decision.

Put on a happy face
TransCanada CEO Russ Girling clearly was attempting to maintain a stiff upper lip in the face of the turndown: "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."

At the same time, however, the Canadian government admonished environmentalists in the U.S. not to interfere with an alternate route that would transport oil to the West Coast (and potentially on to China). Indeed, clearly alluding to the need to court other potential purchasers for his country's crude, Canada's Resources Minister Joe Oliver stated that the Obama administration's decision "underlines the importance of diversifying and expanding our markets."

Earlier, Prime Minister Stephen Harper demonstrated his irritation at contentious elements in our country when he said, "Just because certain people in the U.S. would like to see Canada be one giant park for the northern half of North America is not what our review process is all about."  

Frustration in the U.S.
However, it was not only north of the border that pique resulting from the action of environmentalists and the resulting Obama decision was being displayed. "Tens of thousands of American jobs died today because of the president's rejection of the Keystone XL pipeline permit," said Thomas Pyle, president of the Institute for Energy Research,  a Washington think tank.  "For more than two years, the administration has delayed, hoping to get past 2012 without having to reveal the president's true anti-job, anti-energy agenda."

Clearly, the smoke surrounding the decision on the pipeline project is not about to clear quickly. But given the saber-rattling currently occurring in other areas of the energy-producing world, we can only hope that wisdom manifests itself in our country sooner, rather than later.

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