Obama to Reject Keystone Oil Pipeline

By Jeff Mason

WASHINGTON (Reuters) – The Obama administration was poised on Wednesday to reject the Keystone crude oil pipeline, according to sources, a decision that would be welcomed by environmental groups but inflame the domestic energy industry.

Sources familiar with the matter told Reuters the administration could announce its rejection of TransCanada’s Keystone XL pipeline late on Wednesday. But State Department spokeswoman Victoria Nuland said later that it has not made a decision on the proposed pipeline.

TransCanada Corp. shares slid more than 3 percent after reports that rejection was imminent.

“We’re expecting the pipeline to be rejected,” the source said.

Rejection of the pipeline had been expected in Washington after Obama tried to delay the decision until 2013 but Congress forced his hand as part of a popular tax cut measure. Republican lawmakers have already begun work on a plan to let Congress circumvent the administration and give the project the go-ahead.

State Department officials said TransCanada will be allowed to apply again for a permit if it identifies a new route for the pipeline through Nebraska. Critics of the pipeline have said a spill along this route could contaminate the aquifer. But a new route would mean substantial delays.

TransCanada’s planned 1,700-mile pipeline has become a potent symbol in the battle over of the future of U.S. energy policy.

With environmental groups concerned about carbon emissions from oil sands production, the administration in November delayed a decision on a presidential permit for the project until 2013.

But lawmakers that support the project attached a measure to a tax-cut law passed at the end of last year that set a February deadline for a decision.

The administration has said it needs more time to consider alternative routes for the pipeline, which originally was planned to traverse sensitive habitats and a crucial water source in Nebraska.

The pipeline has placed the Obama administration in the middle of a dispute between two key parts of its voting block: green groups who oppose the pipeline over concerns about climate change and some unions who back the project because of the jobs they believe it would create.

Supporters say the pipeline that would transport 830,000 barrel per day of crude to U.S. Gulf coast refineries would create thousands of jobs and is integral to U.S. energy security.

Environmentalists say the job-creation claims are inflated and warn that the pipeline would lock the nation into the use of carbon-intensive oil sands crude for years. They said their support for Obama’s reelection campaign this year depended on his rejection of the pipeline.

The company in November agreed to find a new route away from the Sandhills and Ogallala aquifer in Nebraska.

TransCanada shares tumbled as word circulated of a rejection for the project the company has developed and promoted for more than three years. The stock was down more than 3 percent at C$40.91 on the Toronto Stock Exchange at midday.

Canadian Prime Minister Stephen Harper said this week that Iran’s threat to block shipping in the Strait of Hormuz pointed to why Washington should approve the project.

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