REGULATION:

Keystone XL heads into battle on 2 fronts

TransCanada announced yesterday that it plans to build a southern segment of the contentious Keystone XL pipeline, opening up a new front with environmentalists as gas prices surge higher.

Additionally, the Canadian company said it would reapply for a permit for the northern portion of the project that would run from the Canadian border to Steele City, Neb. That raises the prospect of TransCanada building the entire oil conduit in pieces and linking the segments together, analysts said.

"Yes, we still hope to do that," said TransCanada spokesman Shawn Howard about the possibility that the full 1,700-mile pipeline from Alberta to Texas would become operational eventually. After months of environmental protests, the White House rejected a cross-border permit for the pipeline in January, saying it did not have time under a congressional deadline to review the pipeline's pathway in an ecologically delicate region in Nebraska.

In a letter submitted to the State Department, TransCanada said it would begin construction of the southern segment of the pipeline from Cushing, Okla., to the Gulf Coast, pending regulatory approvals from federal and state officials. The Cushing-Gulf Coast leg, for example, still needs federal permits where the pipeline would cross waterways.

The company said it expected this $2.3 billion southern portion to be operational by next year and to relieve a bottleneck of oil in the Midwest, where crude is being sold at a discount.

Once a reroute of the pipeline is worked out for another segment around Nebraska's Ogallala Aquifer, the company hopes to connect the various parts into an operating whole, according to Howard.

"If our Presidential Permit application is approved, then it would connect to the hub in Steele City, which would allow increased supplies of Canadian and American oil to continue down to the U.S. Gulf Coast," he said.

Obama administration supports southern segment

At the same time, he said the Cushing-Texas pipeline is a stand-alone project, and that it is too early to tell what will happen with other segments. The Gulf Coast Project has its own independent market value and "commercial utility," he said.

That is a key point under the National Environmental Policy Act (NEPA), which requires the "independent utility" language for the project to be separated in pieces, said Patrick Parenteau, a professor at Vermont Law School, in an email.

Despite denying a cross-border permit for Keystone XL, the Obama administration welcomed yesterday's news and said it was committed to taking "every step possible to expedite the necessary federal permits" for the Cushing-Texas line.

"As the president made clear in January, we support the company's interest in proceeding with the project, which will help address the bottleneck of oil in Cushing that has resulted in large part from increased domestic oil production, currently at an eight year high," the White House said in a statement.

As for the prospect of TransCanada reapplying for a cross-border permit, the White House said its prior denial "in no way prejudged future applications."

State Department spokeswoman Victoria Nuland said that she hoped a review of a new TransCanada application would be "more expeditious" and build on previous environmental analyses. "But we still have to do this right and we still have to provide -- allow an opportunity for input from all of the folks who we are mandated to allow to have an opinion," she said.

Surging oil prices have put the president in a tough spot in an election year and could prompt him to soften his rhetoric on the pipeline, analysts said. President Obama doesn't want to give Republicans any issue that they can use against him, and he might be willing to burn some good feeling with environmental groups if it means winning support from voters worried about oil prices, said Julian Zelizer, a professor of history and public affairs at Princeton University.

Obama's "hope is that as gas prices fall, which they usually do, he can work on strengthening his relationship with those he angers in these days," said Zelizer.

"A transnational pipeline is essential to bringing much-needed oil to our refineries, but unfortunately, presidential politics has put the majority of this project on hold," complained Rep. Fred Upton (R-Mich.), chairman of the House Energy and Commerce Committee. "With political tensions escalating in Iran, we need Canada's oil more than ever. Access to this secure energy source will increase our energy security and help to stabilize gas prices."

Environmental groups object

Environmentalists slammed the announcement and said it would actually lead to a rise in oil prices, because of the Midwestern oversupply of crude -- including Canadian crude -- in the Midwest. Because the southern line is aimed chiefly at relieving a glut, its construction would not bring in additional oil from the Canadian oil sands region, TransCanada said. But green groups said it was setting a dangerous precedent.

"Environmental and economic issues remain the same whether this pipeline is in one piece or two pieces," said Susan Casey-Lefkowitz, an analyst at the Natural Resources Defense Council. "TransCanada should not be allowed to circumvent the presidential permit environmental review and national interest determination requirements by dividing up what is clearly a single project."

In protests at the White House last year, activists slammed the pipeline for its potential to cause oil spills and increase production in Alberta, where the production of oil releases more greenhouse gases than does traditional oil drilling. Additionally, a jury trial is set for late April in Texas to consider the case of a landowner challenging TransCanada's right to use eminent domain on her property to build the pipeline.

Yesterday, 350.org founder Bill McKibben, who led anti-pipeline protests at the White House last year, said "we'll do our best to stand with our allies" fighting eminent domain.

Pipeline supporters say that many of the concerns are overblown, considering that existing lines already carry Canadian oil sands crude into the United States. Even if there were a short-term uptick in prices in the Midwest, the impact would be small, one Senate Republican aide said yesterday.

In the long run, new capacity created by Keystone XL would increase global oil supply and place a downward push on prices once the Midwestern glut situation was worked out, he said. It's also impossible to predict where global oil prices will go two years from now, he said.

It remains unclear when TransCanada will apply for a new permit and determine a new route for the pipeline around Nebraska's Ogallala Aquifer. The state Department of Environmental Quality stopped its review of alternative routes and has been in a "holding pattern" since Obama's decision, department spokesman Brian McManus said yesterday. TransCanada also is watching the fate of a state bill that would outline a review process for a new route in Nebraska, Howard said.

"The state of Nebraska's input is critical," he said.