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Obama Rejects the Keystone Pipeline -- For Now

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The pipeline was not rejected because of its strengths and weaknesses, but rather because "the rushed and arbitrary deadline...prevented a full assessment of the pipeline's impact," explained the White House.

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Another chapter in the country's energy independence saga unfolds: President Barack Obama decided to reject the TransCanada (TRP) Keystone XL pipeline that would have brought Athabasca Tar Sands bitumen from Alberta south to the Gulf Coast, specifically to refineries near Houston and Port Arthur, TX. In addition to the existing TransCanada pipeline phases running from Hardisty, Alberta, to Patoka, IL, and from Steele City, NE, to Cushing, OK, Keystone XL would have increased flow capacity by more than 700,000 barrels/day.

After encountering resistance from Nebraska legislators in mid-November 2011, TransCanada decided to re-route the pipeline around the Sand Hills, under which the crucial Ogallala aquifer is located. Then, the Obama administration secured a delay on the pipeline decision until 2013.

Republicans agreed to a stopgap deal in December 2011 that extended the payroll tax holiday and unemployment benefits, but only by bundling its passage with a significant condition: that the State Department expedite its decision on the Keystone XL pipeline by February 2, 2012.

It is important to note, however, that the pipeline was not rejected because of its strengths and weaknesses. Rather, the White House stated that "the rushed and arbitrary deadline insisted on by Congressional Republicans prevented a full assessment of the pipeline's impact, especially the health and safety of the American people, as well as our environment." This decision comes six days before the president's State of the Union address. The State Department also provided a statement which explained that the rejection "does not preclude any subsequent permit application or applications for similar projects," suggesting that TransCanada could re-apply.

Still, the administration's recommendation was immediately met with harsh criticism from several prominent Republicans, including GOP Presidential candidates Rick Perry and Newt Gingrich, who claimed that the decision was "a stunningly stupid thing to do." Speaker of the House John Boehner (R-OH) asserted that President Obama "expedited the approval of the Solyndra loan project but won't approve a project that's been under review for over three years."

Rumors of the decision sent TransCanada shares down as low as $39.74. After President Obama's speech, however, they rebounded before closing at $41.41, only 0.8% lower than the previous day's close.

Despite Republicans' frustrations, the assessment is not expected to remain permanent. Look to TransCanada to file a permit for approval in the near future. Although many environmentalists cheered the decision, it is more of a delay than an absolute rejection. The statement reflects the Obama administration's attitude that it would not be cajoled into making hasty decisions. As was the status quo in late November 2011, before Republicans in Congress forced the process to be accelerated, expect a decision by early 2013.


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