Keystone Pipeline Likely to be Rejected

As I mentioned last week, the Keystone Pipeline System was the biggest environmental battle of 2011 and will continue to be in 2012. Reuters reports that the Obama Administration will likely reject the pipeline proposal this week, more than a month before a decision needs to be made.

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.

The administration could make its announcement on TransCanada’s Keystone XL pipeline late on Wednesday or on Thursday, a source familiar with the matter told Reuters. TransCanada Corp. shares slid more than 3 percent after the news.

The proposed $13 billion system would transport Canadian crude oil between Alberta, Canada and Port Arthur, Texas via a 1,600 mile pipeline.

Last November, President Obama, facing a multi-day environmental protest outside of the White House, decided to delay making a decision on the proposal “until at least 2013, pending further environmental review.” One month later, the Republican-controlled U.S. House inserted language into an important payroll tax deduction bill requiring the President to make a decision on Keystone by late February.

This decision will be cheered by environmentalists, but will be met with opposition from labor unions, another important constituent for Obama’s reelection. Labor unions have strongly supported the proposed pipeline, citing the thousands of construction, maintenance, and operations jobs associated with its construction.

In delaying the decision Obama will most likely blame House Republicans for forcing him to take a position before a robust environmental review could be conducted. This is a red herring. This project has been under scrutiny for more than three years and two comprehensive environmental reviews have concluded that this project will not adversely affect the environment. The only question the President has to determine is if this project is in the national interest. With low employment and as Iran threatens to close the Strait of Hormuz – a major route for more than one-sixth of global oil supplies – getting energy from our ally to the north seems like a no-brainer.

Despite this looming decision, don’t expect the issue to be settled. Keystone will be a major issue throughout 2012, including the Republican primaries and the general election in the fall.