Keystone denial piles on oil’s woes
Energy industry reels, environmentalists cheer as Obama sends powerful pro-green signal
WASHINGTON — President Barack Obama’s rejection of the Keystone XL pipeline comes at a time when the oil and gas industry is already reeling from numerous political and economic challenges.
As environmentalists celebrate the scuttling of the $8 billion project, they vowed to be more aggressive in battling fossil fuel projects across the country. International leaders are moving toward a global climate change accord next month, aimed at reducing the demand for fossil fuels. And U.S. oil producers are dramatically cutting jobs and investment as crude prices remain depressed.
In denying a presidential permit for Keystone XL, Obama ended a seven-year political saga over the 1,179-mile pipeline, which had evolved into a litmus test amid broader fights over fossil fuels and climate change.
Environmentalists had marched in the nation’s capital and chained themselves to the White House fence over the years to protest the pipeline, claiming it would exacerbate climate change by encouraging more development of oil sands in Alberta, Canada. Supporters argued the project would create jobs in the U.S., deepen economic ties with Canada and provide a reliable supply of heavy North American crude to Gulf Coast refineries wellsuited to process it.
Noting that Keystone XL has taken “an overinflated role in our politi-
cal discourse,” Obama said “this pipeline would neither be a silver bullet for the economy, as was promised by some, nor the express lane to climate disaster proclaimed by others.”
The president stressed that the proposed TransCanada Corp. project would not provide a “meaningful, long-term contribution to our economy,” lower gasoline prices or boost U.S. energy security.
The rejection was seen as a critical moment for Obama’s environmental legacy and providing a more visible, potent symbol of his commitment to a green agenda. The decision adds to a swath of environmental moves by his administration, including mandates throttling greenhouse gas emissions from power plants and clamping down on methane leaking from oil and gas infrastructure.
The Keystone XL denial also is expected to deliver a jolt of momentum to the international climate negotiations in Paris next month.
Obama’s State Department made clear symbolism around Keystone was a critical factor. In its written determination that the pipeline is not in the national interest of the United States, the State Department said “a key consideration” was that approving the project “would undermine U.S. climate leadership” and efforts to prod other countries to achieve “a meaningful global climate agreement.”
“This decision could not be made solely on the numbers,” said Secretary of State John Kerry. “The United States cannot ask other nations to make tough choices to address climate change if we are unwilling to make them ourselves.”
‘Historic’ decision
TransCanada Corp. CEO Russ Girling blasted the move, saying “misplaced symbolism was chosen over merit and science” and “rhetoric won out over reason.”
Girling did not say what TransCanada will do next. Although the Calgarybased company could reapply
for a new presidential permit after Obama leaves office, analysts said it was far more likely Keystone XL will never be built, as oil sands producers turn to rail and other pipelines to move diluted bitumen away from Alberta.
The Keystone rejection emboldens an environmental movement that made Keystone XL the centerpiece of a war against new fossil fuel projects they believe would push global warming above 2 degrees Celsius, a critical threshold.
Obama embraced their mission Friday. “Ultimately, if we’re to prevent large parts of this earth from becoming not only inhospitable but uninhabitable in our lifetimes,” he said, “we’re going to have to keep some fossil fuels in the ground rather than burn them and release more dangerous pollutants into the sky.”
Sierra Club executive director Michael Brune said Obama’s acknowledgment is “historic” and will energize efforts “to keep some dirty fuels in the ground.” Activists next will take aim at possible drilling in the Atlantic Ocean, the proposed expansion of a Utah coal mine and the use of hydraulic fracturing to extract oil and gas.
“We will press hard to apply this climate test to every new fossil fuel infrastructure project — pipelines, drilling proposals, fracking, mining proposals,” Brune said. “And our movement is now big enough and broad enough to make that promise a real one.”
‘An insult to due process’
Bill McKibben, the founder of 350.org who drove the fight against Keystone XL, said Obama is now “the first world leader to reject a project because of its effect on the climate,” giving him new stature as an environmental leader and crucial leverage heading into the U.N. summit.
Keystone’s champions in the oil industry and in Congress said Obama’s decision risks alienating a major North American trading partner.
“This administration’s handling of the Keystone XL application has consistently been an insult to due process and to our northern neighbor,” said Stephen Brown, vice president of government affairs for Tesoro Corp., the San Antonio-based refiner. “Paris trumped Ottawa and optics triumphed over common sense.”
Even though Obama had telegraphed a Keystone XL rejection for months, industry leaders said the denial would discourage investments in other essential energy infrastructure.
Jack Gerard, head of the American Petroleum Institute, said the permit denial “sends a signal to the broader infrastructure community that you can’t rely on certainty from this administration to make these decisions.”
Scott Segal, an oil lobbyist and founding partner of the policy resolution group
at Bracewell & Giuliani, noted that bringing new energy sources online — whether natural gas or renewable power — requires new infrastructure and a commitment to overcoming the obstacles in front of them.
“But the lesson of Keystone is that support for infrastructure in certain circles extends only as far as the politics of the moment,” Segal said.
The decision could raise the stakes for the presidential election next year. Republican presidential candidates have uniformly backed Keystone XL, while Democrats Hillary Clinton, Martin O’Malley and Bernie Sanders oppose it. API’s Gerard said the Keystone debate would only “intensify” and grow in importance heading toward the presidential contest.
TransCanada could be forced to formally write off Keystone XL, which has cost $2.4 billion already and would have been part of the company’s broader Keystone network. Keystone XL would have ferried Canadian oil sands crude as well as supplies extracted from North Dakota’s Bakken formation to Steele City, Neb., connecting into it with other pipelines.
‘Heightened pressure’
TransCanada already built a 487-mile-long leg of Keystone that runs from Cushing, Okla., to Nederland. And the company is building a 48-mile pipeline that will reach refineries in Houston.
At least five other pipelines are proposed to transport oil sands crude away from Alberta — including TransCanada’s proposed Energy East toward Quebec — but collapsing crude prices have diminished much enthusiasm for new development in the region.
The decision could have implications for other industry priorities, including a campaign to lift the 40-year-old ban on crude exports, said Kevin Book, managing director of ClearView Energy, a Washington, D.C.-based research firm.
The rejection of Keystone “seems consistent with a greener and tighter oil and gas policy, but it also may show how President Obama responds to congressional pressure on wedge issues,” Book said. “Heightened, increasingly partisan GOP pressure on crude exports also seems unlikely to produce a yes.”