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Why Keystone Pipeline Project May Get Built After All

Is the political controversy over the Keystone XL oil pipeline project just a lot of hot air?

On Wednesday, after President Obama rejected the project—which would carry oil from Canada to US refineries in the South—the political finger-pointing in Washington kicked into high gear.

Oil Pipeline
Oil Pipeline

Republican Presidential candidate Mitt Romneycalled the decision a “shocking” one that will cost jobs and was just out to please environmentalists. Fellow candidate Newt Gingrichwent so far as to call it “stunningly stupid.”

White House spokesman Jay Carney countered by saying that Republican demands for a quick decision on the pipeline—which was inserted into the payroll tax cut bill in December—was a “purely partisan effort to score a political point.”

Analysts are suggesting, however, that once the project’s builder, TransCanada , reapplies for the permit with a new route, the pipeline will come online in 2014 as the company expected all along—with no construction jobs lost.

“We view this announcement as politically driven and do not believe that it precludes Keystone XL from eventually receiving a Presidential Permit in early-2013, as the company previously expected,” said Linda Ezergailis of TD Securities, in a note to clients.

“TransCanada continues to believe that Keystone XL could enter service in late-2014. We note that this timeline is unchanged from what the company presented at its investor day in November 2011.”

We “do not expect this delay to notably impact oil sands production and construction forecasts at this point,” wrote Tahira Afzal, a KeyBanc analyst.

“Ultimately, we still expect that Keystone XL will be approved on the Department of State’s timeline (Q1/13), with the project coming into service in late-2014,” added CIBC’s Paul Lechem. “We maintain our Sector Outperformer rating and $45.50 price target.”

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In December, Congress passed an extension of the payroll tax cut. Inserted in this bill was a deadline of 60 days for the White House to approve the Keystone permit.

However, the State Department had already said it would need more time to evaluate the economic and environmental impact of the pipeline extension, which has the ultimate goal of bringing crude from Canada’s oil sands down the middle of the country to the Gulf states.

“TransCanada’s management recently indicated that the finalization of a new route in Nebraska is just weeks away,” said Canaccord Genuity’s Juan Plessis, in a note. “Given the extensive work already completed with the DOS, we expect a re-filing of Keystone XL could receive an expedited permitting process.”

The environmental concerns, which the company is already at work addressing with officials in Nebraska, center around the state’s Ogallala Aquifer and a leak tainting that underground body of water.

“This has been 100 percent politics,” said Dan Dicker, president of MercBloc and long-time oil trader. “You can re-route all the oil anyway and the pipeline operators are doing it, and planning on it. It will be resubmitted and approved in the next iteration after the election, 100% assured.”

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.




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