The Obama administration said Thursday it is delaying approval of a massive oil pipeline until it can study new potential routes that avoid environmentally sensitive areas of Nebraska, an action that likely puts off a decision until after the 2012 election.
The announcement by the State Department means Calgary-based TransCanada Corp. will have to figure out a way to move the proposed Keystone XL pipeline around the Nebraska Sandhills region and Ogallala aquifer, which supplies water to eight states. The State Department said it will require an environmental review of the new section, which is expected to take at least a year.
President Barack Obama said the 1,700-mile pipeline is likely to affect the health and safety of the American people as well as the environment.
"We should take the time to ensure that all questions are properly addressed and all the potential impacts are properly understood," Obama said in a statement.
The decision on whether to approve the $7 billion pipeline "should be guided by an open, transparent process that is informed by the best available science and the voices of the American people," Obama said.
TransCanada Corp. is seeking to build a 36-inch pipeline to carry oil derived from tar sands in Alberta, Canada, to refineries on the Texas Gulf Coast. The pipeline would travel through Montana, South Dakota, Nebraska, Kansas and Oklahoma before reaching Texas.
The heavily contested project has become a political trap for Obama, who risks angering environmental supporters if he approves the pipeline and could face criticism from labor and business groups for thwarting job creation if he rejects it.
Some liberal donors have threatened to cut off contributions to Obama's re-election campaign if he approves the pipeline.
The project has become a focal point for environmental groups, which say it would bring "dirty oil" that requires huge amounts of energy to extract. They also worry that the pipeline could cause an ecological disaster in case of a spill.
Thousands of protesters gathered across from the White House on Sunday to oppose the pipeline, and celebrities including "Seinfeld" actress Julia Louis-Dreyfus have made videos urging Obama to reject the pipeline. The State Department has authority over the project because it crosses a U.S. border.
Environmental activist Bill McKibben, who led protests against the pipeline and was arrested in a demonstration earlier this year, said on Twitter that the protests had an effect on the Obama administration.
"A done deal has come spectacularly undone!" he wrote.
The Keystone XL pipeline would carry as much as 700,000 barrels of oil a day, doubling the capacity of an existing pipeline operated by TransCanada in the upper Midwest. Supporters say the pipeline to Texas could significantly reduce U.S. dependence on Middle Eastern oil while providing thousands of jobs.
TransCanada has said a delay in approval could cost it millions of dollars and keep thousands of people of from getting jobs.
The American Petroleum Institute, the oil industry's chief lobbying group, said it was disappointed. "Delaying or denying Keystone XL will damage America's energy and national security," API president Jack Gerard said in a statement.
Canadian Prime Minister Stephen Harper also was disappointed.
"As we have consistently said, the pipeline will create thousands of jobs and billions in economic growth on both sides of the border."
Still, Harper said he remained hopeful that the project will eventually be approved.
Nebraska Gov. Dave Heineman said the State Department decision was due largely to pressure from Nebraskans. Heineman called a special session of the Nebraska Legislature to address pipeline concerns, including a possible rerouting of the pipeline around the Sandhills.
Heineman, a Republican, called the State Department decision "an exceptional moment for Nebraskans" and a sign their voices have been heard.
The decision to reroute the project comes as the State Department's inspector general has begun a review of the administration's handling of the pipeline request. That examination follows complaints from Democratic lawmakers about possible conflicts of interest in the review process.
The inspector generator will look at whether the State Department and others involved in the project followed federal regulations.
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Associated Press writer Grant Schulte in Lincoln, Neb., contributed to this report.
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Follow Matthew Daly on Twitter (at)MatthewDalyWDC
Copyright 2011 The Associated Press.