11/14/2011 02:18 pm ET Updated Jan 14, 2012

Keystone XL: Despite Delay, Oil's Grip Remains Strong

When the State Department moved Thursday to postpone a decision on whether the Keystone XL oil pipeline serves the national interests of the United States -- a question it has been weighing in one form or another for more than three years -- environmental groups found much to celebrate.

But they also surely know that the dispute over Keystone XL -- a proxy, really, for broader and still unresolved debates over oil, climate change and energy policy in America -- is far from over, not least because the delay was much more about political expediency than it was about environmental due process. As much as anything else, delaying the decision until after the 2012 presidential election suggests that the United States is much farther away from a consensus on clean energy than anyone wants to admit. Given the global thirst for oil and the lack of clear policies that would begin to make carbon pollution a more expensive affair, it also seems certain that development of Canada's planet-warming oil patch will continue -- with Keystone XL or without it.

The Keystone XL project, proposed in 2008 by the Calgary-based pipeline builder TransCanada as a conduit linking a fast-growing, environmentally controversial, and carbon-intensive oil deposit in Alberta to a fleet of refiners on the Texas Gulf Coast, will undergo at least another year of scrutiny, federal officials said last week. The nominal reason for the delay: It gives the State Department, which is saddled by a 1968 executive order with permitting authority over infrastructure projects that cross a U.S. border, more time to explore alternative routes in Nebraska. Residents and legislators in that state have vigorously objected to the pipeline's currently planned route, which would take it straight through the grassy, groundwater-rich dunes known as the Sand Hills.

Assuming a new route around this sensitive area could be agreed upon -- a process that is expected to take until the early months of 2013 -- State Department officials, with input from other agencies, would then consider the larger role the Keystone XL project would play in the national interest. "Among the relevant issues that would be considered are environmental concerns -- including climate change," the State Department said in issuing its decision Thursday, as well as "energy security, economic impacts, and foreign policy."

Of course, these are presumably all issues that the State Department has been deliberating for the last three years, so pipeline supporters were flummoxed, perhaps justifiably, by the call for more time.

But President Obama was clearly in a pickle. Rejecting the pipeline outright would risk the wrath of the deep-pocketed oil and gas industries, trade unions and other supporters of the project who argued strongly that the project represented tens of thousands of American jobs and a stable, friendly supply of oil. Jack Gerard, the president and chief executive of the American Petroleum Institute, had warned of "political consequences" if the pipeline were not approved.

Approving it, on the other hand, ran the risk of fundamentally alienating those environmentally-minded voters who played a large role in sweeping Obama into office in 2008. "We don't think that we will be able to effectively mobilize our members until the president keeps his promise to fight climate change effectively and stand up to big polluters and to protect public health," Sierra Club Executive Director Michael Brune said in a phone call with reporters late last month.

And so, as some observers have put it, Obama punted. The move gives temporary succor to greens and, Obama's advisers would presumably hope, only a mild case of heartburn to the fossil fuel industry and its supporters who, while surely disappointed, still have a pipeline proposal out there to lobby for.

In a phone call with reporters late Thursday, Kerri-Ann Jones, the assistant secretary of the State Department's Bureau of Oceans and International Environmental and Scientific Affairs, which is overseeing the permitting process, insisted that the decision was not a political one, and that it rested solely with her agency. "The White House did not have anything to do with this decision, except we consulted with them once we were moving toward it," Jones said. "But they did not direct us to make this decision or -- this is -- this authority is delegated to the Secretary of State through the executive order.

"It was our decision," she added.

Virtually no one among the pipeline's supporters believed this.

"There is no real issue about the environment that requires further investigation, as the president's own State Department has recently concluded after extensive project reviews that go back more than three years," declared Gerard, the president of the American Petroleum Institute. "This is about politics and keeping a radical constituency opposed to any and all oil and gas development in the president's camp in November 2012."

Though he differed in the particulars, Noah Greenwald, the endangered species director at the Center for Biological Diversity, also took umbrage at what he saw as pure political jockeying on Obama's part. "This isn't a game of hot potato," he said. "Keystone XL shouldn't be approved under any circumstances."

Whether TransCanada's project will live long enough to see State make a final decision is unclear. The company will need to find ways to weather the losses it will incur for having signed contracts and issued procurement orders according to a schedule now rendered moot. TransCanada executives have suggested that the delays will cost them upwards of $1 million a day -- though Russ Girling, the company's chief executive, said last week that his company, while frustrated, would be waiting it out.

If that proves so, then among the very first issues to be faced by a newly reelected Obama -- or by his Republican replacement -- will still be whether or not to approve the Keystone XL pipeline. And even if the Keystone XL project bites the dust, efforts to connect the tar sands of Alberta to the global oil market, either by way of the Gulf of Mexico or the Pacific Coast of British Columbia, will almost certainly continue.

"While the United States seeks 'security of oil supply,' Canadian oil sands producers and governments seek 'security of oil demand,' " said Jackie Forrest, a Calgary-based energy market analyst with the consultancy IHS CERA, in an email memo on Friday. "Canada is likely to intensify its efforts to export oil to Asia. In the past few years, Asian companies have invested over $10 billion dollars in oil sands -- the vast majority coming from China. Asia offers Canada the 'security of demand' it seeks, through the combination of investment dollars and a growing appetite for oil."

As if on cue, Canada's Prime Minister, Stephen Harper, has already pointed Asia's way. The State Department decision to delay Keystone XL, Harper was quoted by Reuters as saying during this weekend's Asia-Pacific Economic Cooperation forum in Honolulu, "does underscore the necessity of Canada making sure that we are able to access Asia markets for our energy products. That will be an important priority of our government going forward and I indicated that yesterday to the president of China."

Forrest also suggested that while green groups might reasonably celebrate a political triumph in last week's State Department decision, stalling -- or even killing -- the Keystone XL project is a bit more like Whac-A-Mole than any of them would like to admit. "The delay to Keystone XL," she said, "increases the probability that other pipeline solutions to bring oil sands to new U.S. markets will move forward."

She pointed to one potential substitute from TransCanada competitor Enbridge, which is busy cobbling together plans to link up existing pipelines in the U.S. and Canada in such a way as to give producers in the Alberta tar sands the access to Gulf Coast refineries and ports that they so desperately seek. Such efforts would not require a nettlesome presidential permit since the company would merely be re-purposing a border-crossing pipeline it already owns.

Larry Springer, a spokesman for Enbridge, suggested that as such, his company's proposal could avoid the outcry that has thus far hobbled Keystone XL. "We would be more or less following existing pipelines and existing routes," he said, "so we hope it will be just like any other project."

That may be wishful thinking. More than 1,000 Americans engaged in acts of civil disobedience -- and were promptly arrested -- in protests against the Keystone XL at the White House in August. More than 10,000 demonstrators descended on Washington again just a week before the State Department decided to hold off on a decision. "This could become really the next big fight here," said Damon Moglen, a the climate and energy project director with Friends of the Earth, of Enbridge's project.

Perhaps so, but stanching America's vast thirst for oil will require a far more mainstream effort. Americans currently slurp up 18 million barrels per day, roughly a quarter of the global total. Well over half of that is imported. Currently, most projections show that while American demand is unlikely to grow much over the next few decades, it's also not likely to drop -- at least not without serious policy changes designed to encourage the development of cleaner alternatives.

The Obama administration's decision to punt the Keystone XL decision down the line highlights just how far environmentalists still have to go to get the country focused on clean energy policies.

"Having won this part of the battle, let's take a deep breath and remind ourselves that we're really just getting started," the Sierra Club's Michael Brune wrote last week after the State department announcement. "Because we haven't yet defeated the pipeline for good. And defeating the pipeline isn't even our highest aspiration. This movement is much bigger than just about the tar sands. It's about getting off oil as quickly as we can and replacing dirty power with clean energy as soon as possible."

That remains an uphill battle.