The company behind the Keystone XL pipeline on Monday asked to suspend its U.S. permit application, throwing the politically fraught project into an indefinite state of limbo, beyond the 2016 U.S. elections.
Calgary, Alberta-based TransCanada Corp. sent a letter to the State Department, which reviews cross-border pipelines, to suspend its application while the company goes through a state review process in Nebraska that it had previously resisted.
The move comes in the face of an expected rejection by the Obama administration and low oil prices that are sapping business interests in Canada’s oil reserves.
“In order to allow time for certainty regarding the Nebraska route, TransCanada requests that the State Department pause in its review of the Presidential Permit application for Keystone XL,” the company said in the suspension request reviewed by The Wall Street Journal. “This will allow a decision on the Permit to be made later based on certainty with respect to the route of the pipeline.”
The announcement marks a turning point for the company’s effort to get the pipeline approved. Its executives have repeatedly said over the years they wouldn’t back down from seeking a permit in the face of political or economic uncertainty.
Low oil prices have called into question to what extent oil companies would need the pipeline, and President Barack Obama has repeatedly said he doubted the pipeline would benefit the U.S.
TransCanada’s move comes as the State Department was in the final stages of review, with a decision to reject the permit expected as soon this week, according to people familiar with the matter.
A State Department spokesman didn’t immediately respond to a request for comment.
TransCanada in September signaled it was shifting its strategy when it dropped state legal challenges and efforts to seize land in Nebraska for the pipeline. Company officials hoped those moves would extend the review process in Washington while details on the Nebraska portion of the route were worked out.
The shift reflects headwinds the project continued to face from the Obama administration.
In public remarks made after the November midterm election, Obama said he had doubts about the project. He has said it would create few jobs, not lower gasoline prices and could affect climate change, an important second-term priority for his administration.
The U.S. review process, which has lasted more than seven years, has escalated into a broader debate on the economy, energy production and climate change.
As proposed, the Keystone XL pipeline would move as many as 830,000 barrels of oil a day, mostly from Canada’s oil sands to Steele City, Neb., where it would connect with existing pipelines to Gulf Coast refineries.
Up to 100,000 barrels of that oil would come from North Dakota’s booming oil fields. If completed, the pipeline system would span 1,700 miles and cross six U.S. states.
TransCanada first applied for a permit with the State Department, which reviews cross-border pipeline projects, in September 2008. The company has faced many setbacks both in Washington and in Nebraska, where opposition from landowners and environmentalists delayed the permitting process.
TransCanada has spent at least $2.5 billion on the project, whose total cost if built was estimated to be at least $10 billion due to delays and increased permitting costs.
The company has insisted it won’t abandon the pipeline route as long as shippers continue to back it. The company’s chief executive, Russ Girling, has said Canadian oil producers want a more direct way to access the U.S. Gulf Coast.
No major oil-sands player has publicly backed away from a commitment to Keystone XL, but the urgency of market access as an issue has waned in line with the drop in crude oil prices. The cancellation or suspension of several large oil-sands projects, including one abandoned by Royal Dutch Shell PLC last week, might further ease concern about limited pipeline capacity.
Keystone XL also has faced unexpected resistance in Alberta, home to Canada’s oil sands, with the election in May of a left-leaning government that has adopted a lukewarm approach to the project.
Premier Rachel Notley has questioned the need for greater access to the U.S. market, which buys nearly all the oil that Canada exports. Notley instead has signaled her support for alternative routes such as a proposed pipeline that would link to Eastern Canadian refineries.
TransCanada also lost a staunch ally when Canada’s longtime ruling party lost its mandate in federal elections earlier this month, prompting the ouster of Prime Minister Stephen Harper, who once called Keystone XL a “no-brainer.”
