Obama rejects Keystone XL project

President Obama rejected a presidential permit Friday for the controversial Keystone XL pipeline, citing concerns about its impact on the climate.

“America’s now a global leader when it comes to taking serious action to fight climate change,” Obama told reporters, standing in the Roosevelt Room beside Vice President Biden and Secretary of State John F. Kerry. “And frankly, approving this project would have undercut that global leadership. And that’s the biggest risk we face, not acting.”

He said now was the time to act to “protect the one planet we’ve got while we still can.”

 

The decision to deny TransCanada Corp. a cross-border permit for a 1,179-mile pipeline between Hardisty, Alberta, and Steele City, Neb. puts an end — at least for now — to a seven-year fight over a project that came to symbolize what Obama could do unilaterally to keep fossil fuels in the ground.

What started as a routine permitting application for a large infrastructure project became a litmus test among Democrats for what President Obama was willing to do to tackle global warming in the face of Republican resistance in Congress. Backers of the project said it would ensure a secure supply of oil from a reliable U.S. ally and create jobs; opponents said it would both exacerbate climate change by releasing a massive amount of carbon into the atmosphere and create pollution hazards along the pipeline’s route.

In the roughly seven-minute statement, Obama rejected the idea that the project, which would have brought Canadian oil sands, or tar sands, crude oil to the United States, would either lower oil prices or improve America’s energy security.

“The point is the old rules said we couldn’t promote economic growth and protect our environment at the same time,” he said, “but this is America and we have come up with new ways and new technologies to break down the old rules.”

On Wednesday, the State Department rebuffed TransCanada’s request to suspend its review of the pipeline until the Nebraska Public Service Commission approved a revised route through the state. The completed pipeline would move roughly 830,000 barrels a day of heavy crude oil to U.S. Gulf Coast refineries, which have been refitted to handle low-quality crude of the type produced in Alberta.

TransCanada president and chief executive Russ Girling issued a statement saying his company was “disappointed” with the rejection of its application.

“Today, misplaced symbolism was chosen over merit and science — rhetoric won out over reason,” Girling said. While he did not say whether the firm would try to challenge the rejection in court, he said, “TransCanada is reviewing the decision and its rationale.”

The decision to reject the pipeline comes just two days after the new Canadian prime minister, Justin Trudeau, took office. Trudeau has said that he wants to see the project approved, while stressing that he does not intend for this to remain a sticking point in bilateral relations, in contrast to his predecessor Stephen Harper.

In a statement Friday, Kerry said he had called his Canadian counterpart and the U.S. remains committed to that bilateral relationship.

“The reality is that this decision could not be made solely on the numbers – jobs that would be created, dirty fuel that would be transported here, or carbon pollution that would ultimately be unleashed,” Kerry said. “The United States cannot ask other nations to make tough choices to address climate change if we are unwilling to make them ourselves.”

In the broader U.S. political arena, the move drew immediate criticism from congressional Republicans and some union leaders, as well as praise from environmentalists.

House Speaker Paul D. Ryan (R-Wis.) condemned Obama’s decision. “This decision isn’t surprising, but it is sickening,” Ryan said. “By rejecting this pipeline, the president is rejecting tens of thousands of good-paying jobs. He is rejecting our largest trading partner and energy supplier. He is rejecting the will of the American people and a bipartisan majority of the Congress.”

And Terry O’Sullivan, general president of the Laborers’ International Union of North America, said the move “is just one more indication of an utter disdain and disregard for salt-of-the-earth, middle-class working Americans…  The president may be celebrated by environmental extremists, but with this act, President Obama has also solidified a legacy as a pompous, pandering job killer.”

By contrast 350.org’s Bill McKibben, whose group helped elevate the permit decision to a national issue by staging a huge protest in Washington in 2011, said it set an important global precedent.

“President Obama is the first world leader to reject a project because of its effect on the climate,” McKibben said in a statement. “That gives him new stature as an environmental leader, and it eloquently confirms the five years and millions of hours of work that people of every kind put into this fight. We’re still … sad about Keystone south and are well aware that the next president could undo all this, but this is a day of celebration.”

Later McKibben, a professor at Middlebury College, added in an e-mail that “this was a huge, diverse campaign–the biggest environmental effort in decades. It began with no real hope of victory, and it finished with what one gas executive has called the ‘keystone-ization’ of almost every fossil fuel project in the continent, a growing resistance to an impossible future.”

McKibben’s group highlighted the nature of the oil sands, where oil companies extract a thick bitumen by heating the oil sands to separate the useful crude. That process is energy intensive and therefore results in more greenhouse gas emissions than conventional crude oil.

But the project also drew protest along the proposed route where people worried about possible leaks. Jim Knopik, a farmer in Nebraska who had protested TransCanada’s original plan to build a pipeline across his property, said Friday that it was a relief to hear of Obama’s decision.

“I think it’s long overdue,” he said in an interview. “I’m just glad that it’s coming to an end and that the State Department and President Obama finally are coming out rejecting that thing. It’s pretty obvious to those of us living out here what damages can come from something like that. With climate change and all the other things in the air I think it’s going to be a really good thing.”

Industry analysts are divided over what the decision will mean for oil development in Canada’s oil sands region, which has already been hard hit by lower global crude prices.

“Denial constitutes an extreme case of politicization of energy infrastructure permitting,” said Robert McNally, president of the consulting firm Rapidan Group and energy expert on President George W. Bush’s National Security Council.  “It will add what the industry calls ‘above ground risk.’  It will not prevent the development of energy resources in Canada or the U.S., but delay and uncertainty will raise costs.”

Those costs have become more important as the price of oil has slipped. Rail transport has expanded greatly to carry oil sands to the United States — soaring from just 16,000 barrels in 2010 to 51.2 million barrels in 2014 before dropping back somewhat so far this year. But rail transport is more expensive than pipeline transport. And the extra cost looms larger at current oil prices, which are about half the levels they were for much of the past six years.

Yet the final rejection of the Keystone XL project was widely expected in the oil industry, and many companies have already made other plans.

“The Keystone XL decision was a foregone conclusion,” said Pavel Molchanov, energy analyst at the investment advisory firm Raymond James. “The administration had already telegraphed its opposition, and even the company behind the project recently said that this it was looking to freeze its permit application.”

Democratic presidential hopefuls Bernie Sanders. Martin O’Malley and Hillary Rodham Clinton have come out against the project, and it could only be revived if a Republican won the White House.

“This project, somewhat bizarrely, took on an almost mythical status as the ultimate political hot potato between Republicans and Democrats,” Molchanov said. “But in actuality, it is simply not that big a deal in the grand scheme of things – not for U.S. refiners, and not for oil sands producers. This may be the only pipeline that most Americans have heard of mentioned on TV, but the reality is that new pipeline projects are being approved, and built, on a regular basis.”

Royal Dutch Shell’s chief executive, Ben van Beurden, said last year that the company had bid for space on another pipeline to move its oil sands crude to Canada’s east coast and from there to world markets, including Gulf Coast refiners. “We’re covered. I’m good,” he said in an interview. He said that “The argument that Keystone is a bad idea because it will somehow enable development of resources in Canada is to some extent flawed,” adding that other alternatives would emerge.

Yet pipeline projects across Canada have run into opposition there too. In October, Shell put aside a project that would have expanded its oil sands production and took a $2 billion charge against earnings for it. Van Beurden told analysts on the company’s earnings call that the reason was “not just the bitumen price but also the whole pricing dynamic around diluents and uncertainty about the evacuation route.” Diluents are used to make the bitumen extracted from oil sands less viscous so it can flow through pipelines.

Washington Post