U.S. Delays Pipeline Decision

(by Deborah Solomon, The Wall Street Journal, WSJ.com) WASHINGTON – The Obama administration said Thursday it would seek to reroute a portion of a proposed Canada-U.S. oil pipeline, postponing until after the 2012 election a decision on an issue that has divided the Democratic Party’s environmental and union supporters.

While the Keystone XL pipeline could still be built in 2013 or later, environmentalists called the delay a clear victory. Industry and labor groups, which argue the pipeline would create thousands of jobs and allow the U.S. to increase its imports of oil from a friendly neighbor, issued swift denunciations.

The decision highlighted President Barack Obama’s difficult choices on environmental issues as he heads into an election where he has little margin for error. Republicans and the oil industry say his policies are hindering economic growth, while enthusiasm for the president among environmentalists waned after he put off tighter curbs on smog-forming emissions.

Mr. Obama said a delay was needed to ensure environmental concerns were adequately addressed. “Because this permit decision could affect the health and safety of the American people as well as the environment, and because a number of concerns have been raised through a public process, we should take the time to ensure that all questions are properly addressed and all the potential impacts are properly understood,” he said in a statement.

The decision could reshape the North American energy industry, given the project’s importance for Canadian oil producers looking to the U.S. market and for refiners that have spent billions of dollars to handle the influx of heavy Alberta crude, one of the world’s most promising sources of fuel. Canadian officials and oil-industry executives have recently hinted they would go elsewhere to sell their oil.

Terry O’Sullivan, general president of the Laborers’ International Union of North America, said the move would “inflict a potentially fatal delay to a project that is not just a pipeline, but is a lifeline for thousands of desperate working men and women. The administration chose to support environmentalists over jobs—job-killers win, American workers lose.”

“This is clearly about politics and keeping a radical constituency opposed to any and all oil and gas development in the president’s camp for 2012,” said Jack Gerard, director of the American Petroleum Institute.

A State Department official, Kerri-Ann Jones, said, “This is not a political decision.” The White House didn’t tell the department how to decide, she said.

Environmental groups praised the delay and called on the administration to reject the pipeline outright. “It doesn’t make sense for America to be building infrastructure for dirty oil for the next five decades,” said Susan Casey-Lefkowitz, a director with the Natural Resources Defense Council.

TransCanada Corp., the company which has applied for a permit to build the pipeline, said it believed the project would ultimately be approved. “If Keystone XL dies, Americans will still wake up the next morning and continue to import 10 million barrels of oil from repressive nations, without the benefit of thousands of jobs and long-term energy security,” said Chief Executive Russ Girling.

The move is something of an about-face for the administration, which had said it would make a decision on the 1,700-mile pipeline by the end of the year. Just as it seemed headed toward green-lighting the project, …protest[s] emerged, with environmental groups and concerned citizens protesting at rallies and public hearings. On Sunday, thousands of protesters formed a human chain around the White House. The outcry surprised the White House, which hadn’t expected the pipeline to become such a flashpoint, administration officials said.

On Thursday, [the] State [Department] said it would seek an alternative route for a small portion of the pipeline that runs through an environmentally sensitive part of Nebraska known as the Sand Hills. That will require a new environmental review that will take until at least the first quarter of 2013, the department said.

Department officials said the decision was influenced by recent public hearings in Nebraska, where ranchers, farmers and others pleaded with the administration to avoid the Sand Hills area, which sits atop an aquifer supplying fresh water to Nebraska and other states.

The State Department had previously considered alternative routes to bypass the Sand Hills but concluded they were either economically or environmentally impractical. Ms. Jones said the new analysis would look only at alternative routes that bypass the Sand Hills but remain within Nebraska.

Canadian government spokesman Andrew MacDougall said the country was disappointed with the U.S. decision to delay approval but “we remain hopeful the project will be decided on its merits and eventually approved.”

—Ben Lefebvre and Angel Gonzalez contributed to this article.

Write to Deborah Solomon at deborah.solomon@wsj.com.

Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved. Reprinted here for educational purposes only. Visit the website at wsj.com.