Republicans Fume as Keystone Oil Pipeline Rejected

(REUTERS) -- The Obama Administration rejected the Keystone oil pipeline on Wednesday, a move that Republicans decried for sacrificing jobs and energy security in order to shore up the president's environmental base before elections.

President Barack Obama said the administration denied TransCanada's application for the $7 billion Canada-to-Texas oil sands pipeline because there was not enough time to review an alternate route that would avoid a sensitive aquifer in Nebraska -- within a 60-day window set by Congress.

The Canadian firm quickly said it would re-apply for the permit, which it first sought in 2008. But U.S. officials said it would still take more than a year for the State Department to complete a new environmental review -- pushing any final decision on the line well beyond November's elections.

Even so, Keystone seems certain to become a key issue for the coming presidential campaign, with Republicans accusing Obama imperiling U.S. energy security and environmentalists cheering the White House for standing up to big oil.

Canada has said the uncertainty will cause it to intensify efforts to sell more crude to China.

The administration rejected the attacks, arguing Republicans inserted an unrealistic deadline in legislation in December that was designed to force Obama's hand by the end of February. That measure came after the State Department in November moved to delay a decision in order to study a route that would avoid part of the Ogallala Acquifer, a major source of fresh water.

I'm disappointed that Republicans in Congress forced this decision, Obama said.

Mitt Romney, front runner for the Republican presidential nomination, blasted Obama on the announcement, saying he demonstrated a lack of seriousness in tackling high unemployment.

He seems to have confused the national interest with his own interest in pleasing the environmentalists in his political base, Romney said in statement.

Newt Gingrich, another contender in Republican race for presidential nominee, called Obama's decision stunningly stupid.

LOATHING OIL SANDS

Environmentalists, a key voting bloc that helped Obama win the White House in 2008, had pushed for him to block the 1,700-mile pipeline, saying their support in his reelection campaign depended on that decision.

Environmental groups loathe the idea of increasing the flow of oil sands crude from Canada because of its bigger carbon footprint in the mining process. They cheered the Obama administration in November when it announced it would delay the project, which could transport 830,000 barrels per day of crude.

But lawmakers, led by Republicans, attached a measure to a popular tax cut bill in December that called on Obama to make a decision on the pipeline by the end of February.

The decision, made long before the deadline, also provides the White House with a talking point to take on the campaign trail after delivering the State of the Union next week.

Despite the rejection of the Keystone project, Obama expressed general support for an oil pipeline between Cushing, Oklahoma, and the Gulf of Mexico.

Oil producers were depending on Keystone to help ease a glut of crude at the Cushing delivery point for the New York Mercantile Exchange and shift the crude to the Texas refining center where more oil can be processed.

A CAMPAIGN ISSUE

Republican lawmakers and oil and gas industry groups vowed to keep fighting for the pipeline, which requires State Department approval because it crosses international borders.

Lawmakers have already begun work on a plan to take the decision making power from the White House and give the project an immediate go-ahead.

All options are on the table, House speaker John Boehner said at a press conference after the decision was announced.

Ultimately, oil and gas analysts said it could be possible to work out a deal to greenlight Keystone after the November election.

Kevin Book, an energy analyst at Clearview Energy Partners, said that even an approval in 2013 could still have important implications for North American supply because it would establish a six- or seven-year process for approval of pipelines that cross national borders.

Should environmentalists replicate last year's successful delays in future permit decisions, it would turn what used to be a de facto rubber stamp into a long, drawn-out fight every time, Book said in a research note.

PROFOUNDLY DISAPPOINTED

Canadian Prime Minister Stephen Harper said he expressed in a phone call with Obama his profound disappointment with the rejection, which follows years of intense lobbying in Washington in support of the project, which is partly aimed at raising returns for oil sands producers.

Harper and other officials across the country said they believe Keystone XL will eventually proceed, but that the rejection underlines the need to diversify markets.

The oil sands of northern Alberta are the third-largest crude source after those in Saudi Arabia and Venezuela, but production is more energy and carbon-intensive.

Harper and his Conservative government are pushing hard to boost exports of the crude in the United States and in Asia, seeking employment and economic gains, but face stiff opposition at home and abroad from environmentalists and native groups.

Alberta Premier Alison Redford, whose Western province derives about a third of its revenue from the tar sands and other oil and gas activity, said she spoke to TransCanada officials and will consider ways to move the project forward together.

It's still entirely possible for this project to proceed. There is no doubt that is the opinion of the applicants in the project and we're going to support them in any way they find helpful to try to achieve success on this project, she said.

CAUGHT IN MIDDLE

The pipeline 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 it 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.

The knock on Barack Obama from many quarters has been that he's too conciliatory, said Bill McKibben, who led protests against the pipeline through his organization 350.org. But here, in the face of a naked political threat from Big Oil to exact 'huge political consequences,' he's stood up strong.

ConocoPhillips Chief Executive Jim Mulva said on Wednesday that Canadian oil sands development will go ahead, despite the decision on Keystone.

It's difficult for me to understand why the Keystone project is not quickly approved, Mulva told reporters at an energy conference at Rice University.