GOP Strategy to Approve the Keystone XL Pipeline Project

After President Obama refused to give the Keystone XL Pipeline a Presidential Permit, House and Senate Republicans are devising a legislative strategy to get the project approved. Rep. Lee Terry (R-NE) introduced a bill that will give the Federal Energy Regulatory Commission the authority to approve the pipeline rather than the President. In addition, House Republicans may submit an application to approve the pipeline along with an extension in the payroll tax cut and unemployment insurance, scheduled for review in February.

The Keystone XL Pipeline, a $7 billion project proposed by TransCanada, would transport crude oil from the tar sands in Alberta, Canada to oil refineries in the Gulf Coast. Canada is a more reliable supplier of oil than other major suppliers – Saudi Arabia, Mexico, Venezuela and Nigeria.

Republicans support the pipeline because it will increase energy independence and jobs for a nation suffering from 9% unemployment. They claim the pipeline will create 20,000 temporary construction and manufacturing jobs as well as over 100,000 jobs in the long term. On the other hand, a report by Cornell University’s Global Labor Institute argues these claims are highly overstated. The organization asserts data provided by TransCanada supports only 2,650 to 4,650 temporary construction jobs for 2 years.

Another issue for Republicans is that Canada will export the oil from Keystone XL to China if the project is not approved by the United States. The Canadian Natural Resource Minister Joe Oliver stated, “the decision by the Obama administration underlines the importance of diversifying and expanding our markets, including the growing Asian market.”

President Obama rejected TransCanada’s application to build the pipeline because he claimed the economic, environmental, and safety reviews were incomplete and he had been rushed by Republicans into making a decision within 60 days. Communities and environmentalists have asserted that the Environmental Impact Statement released by the State Department did not include enough information about the potential environmental effects of oil spills, health effects in low income communities and effects of increased greenhouse gas emissions caused by the pipeline. Political analysts view Obama’s rejection of Keystone XL as satisfying environmental groups that are large donors to the Democratic Party.

Environmentalists are also worried about the pipeline being constructed through an environmentally sensitive region in Nebraska, the Sandhills. Obama stated his administration will allow TransCanada to reapply for a permit once it changes the route for the pipeline. But, Republicans have vowed to move ahead with the project without the approval of the administration.

The Decision’s Effect on Oil Companies

TransCanada’s outlook for Keystone XL is still positive despite Obama’s rejection of the project. CEO Russ Girling explained that oil producers and refining firms are still obligated to fulfill their contracts. For example, Valero Corporation (NYSE:VLO) has a 20% stake in Keystone XL and will still receive crude from the pipeline despite the delay in its construction. Valero is the world’s largest independent refiner and has invested heavily in upgrading its Port Arthur, Texas refineries to handle the Alberta-based heavy crude. Motiva Enterprises, a joint venture between Royal Dutch Shell (NYSE:RDSA) and Saudi Aramco, also has long-term contracts with Keystone XL and has prepared its refinery in Port Arthur to handle heavy crude.

Oil stocks have only taken a small hit as a result of Obama’s rejection of the project because analysts believe it will eventually be approved. In addition, companies know they can turn to China to export Canada’s oil resources if the project falls through.

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