Obama Administration to Deny Keystone XL Permit

The Obama Administration is expected to announce this afternoon that it will deny a National Interest permit for the Keystone XL pipeline project. TransCanada, the company building the project, will reportedly be given an opportunity to "reapply" once it develops an alternative route to avoid the Sandhills region of Nebraska. 

Many media outlets are reporting that the President has chosen to deny the project because of the short deadline (February 21) imposed by Congress in the payroll tax compromise passed in December 2011. Provisions were included from legislation authored by Senator Richard Lugar (R-IN) that would require the President to make a National Interest Determination on the Keystone XL project within 60 days. Lugar introduced his bill after the Administration announced that it would delay its decision on a National Interest permit until the first quarter of 2013 despite making initial commitments to finish the review in 2011. Today's decision was not entirely unexpected as the Administration stated that a truncated Congressional review would short-circuit its oversight obligations in addition to strong opposition by several environmental groups over Canadian oil sands development practices, expected rises in greenhouse gas emissions, and their concern of potential oil spills from the pipeline. It is, however, somewhat surprising that more of the additional 60 day review period was not used before making this announcement. 

The $7 billion project, which has been under State Department review since 2008, would travel roughly 1,700 miles from Alberta, Canada through the Midwest and ultimately to refineries in the Gulf Coast region of the United States. Since the pipeline crosses international boundaries, a Presidential Permit must be obtained through a National Interest Determination process that is led by the State Department under the National Environmental Policy Act (NEPA). This requires the State Department to conduct a full environmental review and coordinate with all federal agencies that have jurisdiction on potential policy implications of a major project such as Keystone XL. The State Department has previously conducted two such reviews and approved two large-scale Canadian oil sands pipelines; ironically one included the first phase of the Keystone line (2010) and the other is the Enbridge Alberta Clipper project (2009). 

Opposition grew last summer in the State of Nebraska over the selected route of the project that ran through the sensitive Sandhills region and that a potential oil spill from the pipeline would unduly impact the Ogallala Aquifer. Governor Dave Heineman called the unicameral legislature into a special session to debate legislation regarding the siting of the project. Unlike interstate natural gas pipelines, there is no federal construction permit (with the exception of international border crossings) for interstate oil pipelines. All siting for interstate liquid pipelines is done on a state-by-state basis. Although some argued that Nebraska waited till very late in the State Department's review process to exercise new siting authority, the legislature ultimately passed a bill that would divert the Keystone line around the Sandhills region. While this decision could not technically prevent a favorable final ruling by the State Department, it certainly held significant sway with the Administration and very likely played a role in delaying a final decision.

Outstanding questions remain about the future of the project. Its supporters claim that this decision puts over 20,000 construction jobs in jeopardy and foregoes millions of dollars in lost taxes and revenues, as well as over 500,000 barrels per day of oil from our most reliable and trusted trading partner. Canadian Prime Minister Stephen Harper has made several declarations of his intentions to develop the country's oil sands reserves and an interest in alternative pipeline projects to ship the products to Asia. The Northern Gateway Project being developed by Enbridge, which would transverse Alberta to British Columbia, has been touted as one such example of the industry's seriousness in reaching these markets. According to the Administration's announcement, TransCanada will be given an opportunity to "reapply" for future approval after an alternative route is developed around the Sandhills. There appears to be some parsing here, because Assistant Secretary of State Kerri-Ann Jones told the press, "we'd also have to look at this as a completely new application, and that's how it would be treated." If the State Department is treating any reapplication by TransCanada as a distinctly new application that would mean another full-blown NEPA review which can take several years and is subject to legal challenges. The company has been working on the development of a new route in conjunction with the Nebraska Department of Environmental Quality as part of the requirements of the new siting law passed by the legislature last fall. Some have estimated such a review would take approximately six to nine months. After so many setbacks, it may simply make better business sense for TransCanada to find new customers overseas or elsewhere.

There are many lessons states can take from this over-arching debate. First, they wield significant power in shaping, siting, and developing pipeline infrastructure; that power has profound implications for national energy security and environmental policy. Second, states should expect to be confronted with more controversial siting decisions as unconventional fossil fuel development expands in Canada and the US. Finally, this development is likely to occur in places that aren't traditionally considered to be in the oil patch or familiar with the oil and gas industry.