Keystone XL pipeline rejection a setback for Canadian tar sands development

But the Obama administration's decision to reject the project isn’t likely to end investment in controversial fuel

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An Omaha protester who opposes the Keystone XL pipeline because of environmental reasons.

Nati Harnik/AP Photo

The Obama administration's decision to reject a pipeline that would have carried crude from Canada’s tar sands deposits to Texas oil refineries isn’t likely to end investment in the carbon-rich fuel, industry analysts say.

In killing the controversial Keystone XL pipeline, President Obama blamed congressional Republicans, who he said “forced this decision” by requiring an expedited 60-day review of the pipeline as a provision of the recent payroll tax extension.

Obama also reaffirmed his support for domestic oil and gas exploration and expanding fossil fuel infrastructure. “In the months ahead, we will continue to look for new ways to partner with the oil and gas industry to increase our energy security,” he said.

But industry analysts question this rationale. “If your objective is improving our energy security, then Keystone should have been built,” said Sarah Emerson, president of Energy Security Analysis, Inc., an energy forecasting firm.

Environmentalists have reason to temper their excitement over the pipeline's defeat. They opposed pipeline builder TransCanada's project because of fears about spills and the climate-change implications of refining tar sands, which give off more carbon dixoide than traditional crude oil. But Obama threw his support behind additional U.S. drilling. And analysts say production of tar sands in Canada will continue.

“Is it a setback? Yes,” Emerson said. “Does it spell the end of the oil sands development? No.”

She predicts that America’s northern neighbor will go forward with a stalled pipeline to its Pacific coast. “I suspect that [Canada looks] at this as a rejection and they’ll say ‘OK, well, you don’t want our oil? We’ll sell it to China.’”

Investors in Canada’s tar sands, who had been closely following the Keystone battle, are not likely to pull out just yet. “I don’t know exactly what kind of message this sends, just because it’s an election year,” said Jacob Correll, a commodities analyst at Summit Energy, a consulting firm. “There’s still money to be made.”