Obama’s denial opens new chapter in Keystone XL drama

Source: Elana Schor • E&E • Posted: Friday, January 20, 2012

The political fallout from President Obama’s denial of the Keystone XL oil pipeline today began on both sides of the northern border, as Republicans raced to slam the White House while Canadians sought another outlet for their planned boom in oil sands crude production.

The debate over Keystone XL begins a new chapter as both the Obama administration and pipeline backers in the GOP and industry double down on their pitches about the merits and pitfalls of TransCanada Corp.’s $7 billion bid to link the Alberta oil sands to Gulf Coast refineries.

In a report sent to Congress last night — 15 days ahead of its deadline — the State Department explained its choice to reject the oil line, with a jab at claims by Republicans and oil companies that building Keystone XL would generate more than 100,000 U.S. jobs.

“The construction of the Keystone XL pipeline would likely create several thousand temporary jobs associated with construction; however, the project would not have a significant impact on long-term unemployment,” State wrote, dismissing the GOP jobs claims as “inflated” and a “misinterpretation” of previous analysis.

Republicans pushed back hard at Obama’s decision, which many in their camp had expected even as they held out hope that he would embrace the XL line as a political and policy winner given the stability of the U.S.-Canada trade relationship. From an online petition launched by House Speaker John Boehner’s (R-Ohio) office to a Republican National Committee roundup of editorial boards blasting the denial, the GOP today remains a hotbed of calls for Congress to override Obama’s decision.

Keystone XL override legislation could come to a House vote within weeks, and an Energy and Commerce Committee hearing on the pipeline’s denial is already set for Wednesday (E&ENews PM, Jan. 18). But even as red-state Democrats and some unions lamented Obama’s unraveling of a project that would have boosted manufacturing and construction activity, any attempt to slap the White House over Keystone XL remains a long shot at best in the Democratic-controlled Senate.

“It doesn’t have to be a unanimous thing for the Democratic caucus,” one Senate Democratic aide said of defending the Keystone XL denial, speaking on condition of anonymity. “You just need a critical mass to make clear that they’re not willing to support any [legislation] with that provision moving. That could give [Senate Majority Leader Harry] Reid [D-Nev.] what he needs to negotiate.

Reid is likely to get his first chance at beating back a push on the pipeline as soon as Congress convenes next week, with the White House’s prized payroll tax cut set to expire on Feb. 29 and Republicans ready to use any means they can to force a positive ruling on Keystone XL.

Obama’s re-election campaign joined the fray over energy job creation for the first time last night in an advertisement that, while not mentioning Keystone XL specifically, defended his record in promoting “clean energy” employment (see related story)

“If you look at the amount of resources being put into public outreach across the country, I think that there is no worry about [the pipeline] going away in voters’ minds,” Neil Brown, a senior adviser to Sen. Richard Lugar (R-Ind.), said via email.

Lugar authored the 60-day deadline for a White House decision on the pipeline that was added to last month’s payroll tax-cut deal, setting up the Obama denial released yesterday. He and other Republicans hail Keystone XL as a valuable replacement for oil now imported from the unstable Middle East, warning that Canada would turn to China as a long-term customer for its oil-sands crude in the absence of a path from Alberta to the Gulf Coast.

Canada’s natural resources minister, Joe Oliver, underscored his government’s desire for Asian customers in a statement on the Keystone XL denial. While Canada is “hopeful that this project will be approved in the future based on its merits,” Oliver said yesterday, Obama’s ruling “underlines the importance of diversifying and expanding our markets, including the growing Asian market.”

Yet the oil-sands industry’s central path to Asia, Enbridge’s Northern Gateway pipeline to the west coast of Canada, remains mired for the time being in resistance from indigenous First Nations communities.

In addition, Canadian oil companies signaled yesterday that the XL denial — particularly given Alberta-based TransCanada’s plan to reapply for a federal permit — would not hinder development of an emissions-intensive fuel not expected to reach a transportation-capacity shortage until 2015 or beyond.

“We think this doesn’t need to have an impact on the ramp up in oil sands production,” Tom Huffaker, vice president of policy and environment at the Canadian Association of Petroleum Producers, told the Calgary Herald yesterday. “The pipeline is not needed immediately, and obviously there are other projects that are on the table that are being looked at, and there is some capacity in the system still.”

Click here to read State’s report to Congress on the pipeline rejection.