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Canada To Harper's 'profound disappointment,' Obama rejects Keystone

The unfinished Keystone oil pipeline stretches through the North Dakota countryside.

Reuters/TransCanada Corp.

U.S. President Barack Obama has again delayed a decision on the controversial Keystone XL pipeline project until after the November election, and in doing so drew fire from Republicans, the oil industry and Prime Minister Stephen Harper.

The U.S. State Department announced on Wednesday that the President has rejected TransCanada Corp.'s application for a permit to build the $7-billion cross-border pipeline on the grounds that the government did not have enough time to properly study it.

The decision was expected – the Obama administration has been warning it would be forced to turn down TransCanada's bid since Republicans in Congress used a procedural trick before Christmas to pass legislation setting a 60-day deadline for the administration to make a decision.

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Mr. Obama called Mr. Harper with the news, saying the decision was not made on the merits of the project but because of the unacceptable deadline, the Prime Minister's Office said in a statement. The President also said TransCanada is free to reapply when it has concluded a small route change through an environmentally sensitive area of Nebraska.

In the brief phone conversation, the Prime Minister "expressed his profound disappointment with the news," his office said. And Mr. Harper "reiterated to the President that Canada will continue to work to diversify its energy exports."

Ottawa has said delays with the Keystone XL pipeline underscore the urgency of opening new export routes to fast-growing Asian markets. In February, Mr. Harper will visit China, where oil exports are expected to be a major topic as Chinese companies increase their investments in the oil sands.

The Obama administration first delayed the pipeline ruling last November, when it cited concerns about the Sand Hills route in Nebraska. The State Department in November deferred a decision until early 2013, ostensibly to give TransCanada time to identify a new route and provide state officials with the opportunity to do their own environmental assessment.

While environmentalists applauded Wednesday's announcement, Republicans seized on the news to accuse Mr. Obama of letting the concerns of a fringe group of activists trump the job-creation and energy-security benefits that the pipeline would deliver.

The successive delays, they argued, are designed to avoid a tough decision ahead of the November election.

"President Obama is destroying tens of thousands of American jobs and shipping American energy security to the Chinese," Republican House Leader John Boehner told a news conference.

But the battle is far from over.

Within an hour of the announcement, TransCanada said it would reapply for a new permit that will include a new route in Nebraska that avoids the ecologically sensitive Sand Hills.

"While we are disappointed, TransCanada remains fully committed to the construction of Keystone XL," company chief executive officer Russ Girling said in a release.

The Keystone XL pipeline would deliver some 800,000 barrels a day of Alberta bitumen to U.S. Gulf Coast refineries, and is seen as a key conduit for shipping growing oil-sands production to premium markets.

The company said it expected the review process will be "expedited" – given that the government has already reviewed virtually the entire line except the rerouted portion in Nebraska – and the company could meet its planned completion date of late 2014.

The State Department's Kerri Ann Jones said she could not guarantee the review would be sped up, saying TransCanada would have to start anew, though the department could make use of information gathered in the previous effort.

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U.S. environmentalists say TransCanada will face determined opposition as it proceeds to the revamped project.

"And if they do reapply, TransCanada will face the same valid public concerns and fierce opposition as the first time," said Susan Casey-Lefkowitz, a Washington-based lawyer with the Natural Resources Defence Council.

"No matter how many times it is proposed, Keystone XL is not in the national interest."

Canadian supporters clearly blamed presidential politics for the delays.

"This is a presidential year and clearly this issue is very much a political issue between the Republicans and Democrats," Natural Resources Minister Joe Oliver said in Ottawa. "There are political issues that are impinging on the process."

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