November 14, 2011 / 7:21 PM / 6 years ago

COLUMN-Keystone concerns limited to Sand Hills: John Kemp

--John Kemp is a Reuters market analyst. The views expressed are his own.

By John Kemp

NEW YORK, Nov 14 (Reuters) - "President Barack Obama approves Keystone XL pipeline with minor revisions" is not a headline that appeared anywhere last week, much to the relief of the White House. But it is arguably a fair summary of the president's decision to call for additional information on alternative routes on just one small section of the line.

The State Department's request for information on alternative routes, postponing a final decision until the first quarter of 2013, safely beyond the next election, has drawn predictable praise from environmental groups and outrage from the American Petroleum Institute (API).

For supporters and opponents alike, the decision is a potentially fatal blow to the project, and has taken on out-sized importance as a symbol of the administration's commitment to clean technology and developing domestic oil and gas resources.

Natural Resources Defense Council (NRDC) President Frances Beinecke welcomed the president's "leadership and courage in putting the interests of the American people before those of Big Oil". NRDC notes other pipelines will now face even greater scrutiny as a result of the decision.

On behalf of the API, President Jack Gerard blasted the decision as "deeply disturbing and troubling. Whether it will help the president retain his job is unclear, but it will cost thousands of shovel-ready opportunities for American workers".

Canada's finance minister expressed doubts whether the project could survive the delay -- and vowed his government would move quickly to see if oil could be exported west through British Columbia to Asian markets instead.

For U.S. oil producers and refiners, the delay raises questions about the administration's strategy for boosting oil and gas production, and further increases uncertainty surrounding this and other pipeline projects, as well as the prospect of developing shale gas and oil deposits.

But a careful reading of the decision shows it is much narrower than either supporters or opponents claim. A cynical observer might conclude the administration has approved the rest of the route, while requiring more study on a single minor section across Nebraska's Sand Hills region.

The postponement will keep environmental groups onside through next year's reelection campaign, while extending an implicit promise to pipeline operator TransCanada and the oil industry that the line will eventually be approved with only relatively minor modifications once the election is safely out of the way.

THE SAND HILLS

President Obama's November 10 statement was framed in sweeping terms. "I support the ... announcement today regarding the need to seek additional information about the Keystone XL Pipeline proposal," according to the White House release.

"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".

But the actual decision was much narrower. The permit process consists of two stages: an Environmental Impact Statement (EIS) required under the National Environmental Policy Act (NEPA) and a National Interest Determination (NID) which extends beyond environmental impact to include economic, energy security, foreign policy and other relevant issues.

The State Department has already carried out an impact assessment for the proposed Keystone XL route and concluded it was best one in terms of economic efficiency and environmental risk.

Nothing in the announcement suggests the Department has changed its view. In fact the Department has reaffirmed its backing for the EIS "technical analytical" assessment. Officials stress the decision to seek more information is entirely separate from the EIS process.

Instead the State Department has decided to request more information as part of its separate national interest determination which looks at a broader range of factors, including the views of citizens and lawmakers in affected states. The decision appears to have been particularly influenced by opposition to the proposed routing through the Sand Hills.

Assistant Secretary of State Kerri-Ann Jones told reporters at a briefing on November 10: "We are looking for additional information ... because there is such an interest from the state officials and from the citizens of Nebraska".

"We do recognize that thelegislature is in special session now, and we know that this is under discussion ... we would work very much with the Nebraska legislature as they're going through their discussions" she said.

LIMITED REVIEW

Nebraska's governor and lawmakers have indicated support for a pipeline through the state, though not the Sand Hills region, and want time to put in place a more detailed permitting process at state level.

Governor Dave Heineman wrote last month "I support the pipeline, but I'm opposed to a route that goes through the Sand Hills and over the Ogallala aquifer ... TransCanada already has a pipeline route on the eastern side of the state. I would support the proposed pipeline being routed by the current pipeline".

Crucially, Assistant Secretary Jones confirmed the State Department will only seek information on alternative routes within Nebraska avoiding the Sand Hills, and any new impact statement will be restricted to just that section of the line. So the rest of the permitting work is not being challenged at this point, and will not need to be redone from scratch.

Jones was unequivocal. In response to a question from a reporter, about whether the EIS is going to be conducted for the entire route for the pipeline or just where it would be rerouted, Jones replied "It would just be for the new -- the suggested alternative route or routes. So it would only be really what's called a supplemental environment impact statement".

In endorsing the EIS for the rest of the line, and focusing on NID issues related to a small portion through Nebraska, the administration appears to concede its concerns are restricted to this one segment, and it has no fundamental objections to the rest of the line.

By implication, the administration indicated it would presumably give the go-ahead if and when concerns related to the Sand Hills are addressed. But only once the 2012 election is safely passed. References: (1) State Department pipeline permitting process:(2) State Department on reasons for postponement:(3) Nebraska governor on pipeline route:(4) NRDC on wider implications:

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