Nebraska ruling could grant Obama breathing space on Keystone

WASHINGTON Fri Feb 21, 2014 5:42am IST

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WASHINGTON Feb 20 (Reuters) - A Nebraska judge's ruling on the Keystone XL pipeline could let President Barack Obama delay his final decision on the project until after mid-term elections and avoid political damage, analysts say.

The Nebraska ruling on Wednesday put the controversial project in legal limbo and likely delayed the state's decision on the pipeline until later this year.

That raised the possibility Obama would wait until the Nebraska situation is resolved before making his final decision, possibly after Nov. 4 elections that could determine whether his Democratic Party keeps control of the Senate.

Approving TransCanada Corp's $5.4 billion pipeline before the elections would anger environmentalists, an important part of Obama's base.

An approval could, on the other hand, help vulnerable Democrats like Mary Landrieu in Louisiana and Mark Begich in Alaska, who are from energy producing states, as well as Mark Pryor of Arkansas and Kay Hagan of North Carolina.

Once complete, Keystone could ship more than 800,000 barrels per day of Canadian crude oil that is emissions intensive to produce.

It's not clear what greens would do to vent their anger. Staying home on election day could be one option. But a protest movement that has crystallized against Keystone could also turn next to other energy projects such as wells that conduct hydraulic fracturing, or fracking, for oil and natural gas.

Environmentalists could also try to delay approvals of terminals to export liquefied natural gas, potentially blocking part of the climate action plan Obama introduced last year to help create a global market for U.S. gas.

"Politically it raises the cost of the president's approving the permit, at least before the state issues are resolved," said Robert McNally, president of Rapidan Group, an oil consultancy, who was an energy advisor to former President George W. Bush.

The Nebraska ruling "gives Obama an excuse to punt the decision past the election," said McNally, who believes Obama will eventually approve Keystone to improve U.S. energy security and maintain relations with Canada.

NEBRASKA DELAYS

Nebraska judge Stephanie Stacy struck down a state law on Wednesday that allowed Governor Dave Heineman to approve the Keystone pipeline's path through the state.

TransCanada may now have to submit an application to the Nebraska Public Service Commission, and the agency's decision could take seven months or more. Stacy's ruling has also been appealed by the state's attorney general on behalf of Governor Dave Heineman, but it is uncertain how long the legal process will take.

The White House referred questions about the Nebraska ruling to the State Department.

The State Department would not comment on whether it will put a hold on its process for weighing whether Keystone is in the country's interest to await Nebraska's next move.

"It just came out yesterday. We are still sort of looking at all of it," Assistant Secretary of State Kerri-Ann Jones in charge of environmental affairs told reporters, about the Nebraska court ruling.

There is nothing in the Nebraska ruling that prevents the State Department from continuing the 90-day national interest determination that is now in its third week.

Eight federal agencies including the Departments of Defense, Commerce and Transportation and the Environmental Protection Agency are working with the State Department to determine whether Keystone would benefit the U.S. economy and energy security.

Any delay by the Obama administration would more likely come after the agencies have made their assessment, analysts said. Secretary of State John Kerry is expected to make a recommendation to Obama but has no firm deadline to do so.

Although in theory the administration could approve Keystone before the Nebraska situation is resolved, Obama and Kerry would probably not do so, Divya Reddy, an analyst at the Eurasia Group risk consultancy said in a note to clients.

"Risks of slippage on timing are now higher and will depend heavily on the outlook for the appeals process in Nebraska," Reddy said.

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