Obama's Rejection of the Keystone XL Oil Pipeline Is Pure Politics


"Most experts believe the Keystone oil pipeline will eventually get built, but in the meantime, President Obama's decision gives both Republicans and Democrats raw material for 2012 campaign speeches."

U.S. President Barack Obama's rejection of the Keystone XL oil pipeline on Wednesday had much more to do with political maneuvering than the construction of the pipeline.

Most experts believe the Keystone oil pipeline will eventually get built, but in the meantime, President Obama's decision gives both Republicans and Democrats raw material for 2012 campaign speeches.

All the clues to what's really going on are right in President Obama's statement.

"This announcement is not a judgment on the merits of the pipeline, but the arbitrary nature of a deadline that prevented the State Department from gathering the information necessary to approve the project and protect the American people," the president said.

The 1,700-mile, $7 billion (B) pipeline would bring oil from the vast Canadian tar sands in Alberta to refineries in Port Arthur, Texas.

The Republicans included a deadline for a decision on the Keystone oil pipeline in the payroll tax cut extension deal made at the end of last year.

Members of the GOP wanted to make President Obama choose between his green supporters and approving a project that TransCanada (NYSE:TRP) says will create 20,000 jobs.

"I'm disappointed that Republicans in Congress forced this decision," President Obama said, "but it does not change my administration's commitment to American-made energy that creates jobs and reduces our dependence on oil."

By pointing out that he had not yet determined the merits of the project, and that the Republicans boxed him in, the President Obama left the door wide open to reconsidering the Keystone oil pipeline later.

Environmentalists Celebrate

Rejecting the project now, however, allows President Obama to satisfy environmentalists—a key constituency he needs to get reelected in November—who fear exploiting the oil sands will contribute to climate change.

"The knock on Barack Obama from many quarters has been that he's too conciliatory," said Bill McKibben, leader of an anti-pipeline group called 350.com. "But here, in the face of a naked political threat from Big Oil to exact huge political consequences, he's stood up strong."

And while another major Democratic constituency, labor unions, didn't like the decision—the pipeline would create thousands of construction jobs—President Obama placated them earlier this month by making two important recess appointments to the National Labor Relations Board.

Of course, Republicans jumped at the chance to attack the rejection of the Keystone XL oil pipeline.

"He seems to have confused the national interest with his own interest in pleasing the environmentalists in his political base," former Massachusetts governor Mitt Romney said in statement.

Former house speaker Newt Gingrich simply said the decision was "stunningly stupid."

Other Republican leaders vowed to keep the issue alive as the 2012 campaign heats up.

"This is not the end of the fight," declared House Speaker John Boehner, R-OH.

Keystone XL Pipeline Not Dead

Meanwhile, President Obama's rejection of the Keystone oil pipeline is unlikely to have any lasting impact on whether or not it gets built.

One of the people with the most at stake, TransCanada CEO Russ Girling, sounded completely unfazed by the president's decision.

"TransCanada remains fully committed to the construction of Keystone XL," Girling said in a statement. "Plans are already underway on a number of fronts to largely maintain the construction schedule of the project. We will reapply for a presidential permit and expect a new application would be processed in an expedited manner to allow for an in-service date of late 2014."

Even Canada's elected officials, displeased enough at the project's delays to threaten selling production from the Alberta oil sands to China by building a pipeline to the west, expressed confidence that the Keystone XL oil pipeline project is far from dead.

"This is clearly the biggest infrastructure project on the continent, and once the election is settled, we believe it will be approved," John Stephenson, who helps manage $2.7B for First Asset Management Inc., told Bloomberg News. He said he bought 350,000 shares of TransCanada stock Wednesday when it dipped by 2.6%. "All the waffling just gives people an opportunity to trade around it."

David Zeiler, Money Morning

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