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Obama administration rejects Keystone XL pipeline

The White House has rejected the Keystone XL pipeline, President Barack Obama announced Friday.

Obama, flanked by Secretary of State John Kerry and Vice President Joe Biden, delivered a statement on the pipeline decision from the White House, during which he said the proposed pipeline project had "occupied what I frankly consider an over-inflated role in our political discourse."

TransCanada — the company behind the proposal — shares traded about 5 percent down on the day as of 11 a.m. ET. Oil futures, however, moved little on the news, as traders said the pipeline has become less of a hot-button issue with the increase of U.S. production.

"This morning Secretary Kerry informed me that after extensive public outreach and consultation with other cabinet agencies, the State Department has decided that the Keystone XL Pipeline would not serve the national interests of the United States. I agree with that decision," Obama said.

Read MoreEconomics no longer make Keystone pipeline viable

Listing the reasons why the State Department recommended rejecting the pipeline, Obama highlighted his administration's analysis that the project "would not make a meaningful, long-term contribution to our economy."

Additionally, Obama said the State Department believed the pipeline would not lower gas prices for american consumers (and he pointed to the recent decrease in the cost of gas to consumers). Obama also said that "shipping dirtier crude oil into our country would not increase America's energy security," seeking to rebut one of the frequent arguments for the Keystone XL project.

Finally, Obama emphasized his administration's achievements on the environmental front, and said that approving the pipeline project would not remain consistent to those principles.

"America is now a global leader when it comes to taking serious action to fight climate change, and, frankly, approving this project would have undercut that global leadership," Obama said.

Keystone XL would have linked existing pipeline networks in Canada and the United States to bring more than 800,000 barrels per day of heavy crude oil and diluted bitumen from Alberta's oil sands to refineries in Illinois and, eventually, the Gulf of Mexico coast.

In response to Friday's rejection, TransCanada announced that it planned to review its options, including filing a new application.

"TransCanada and its shippers remain absolutely committed to building this important energy infrastructure project," Russ Girling, TransCanada's president and chief executive officer, said in a statement. "We will review our options to potentially file a new application for border-crossing authority to ship our customer's crude oil, and will now analyze the stated rationale for the denial."

TransCanada first sought the required presidential permit for the cross-border section in 2008.

The proposal inspired a wave of environmental activism that turned Keystone XL into a rallying cry to fight climate change. Blocking Keystone became a litmus test of the green movement's ability to hinder fossil fuel extraction in Canada's oil sands.

"This is a big win," said Bill McKibben, the co-founder of 350.org, an environmental group. "President Obama's decision to reject Keystone XL because of its impact on the climate is nothing short of historic, and sets an important precedent that should send shockwaves through the fossil fuel industry."


Fadel Gheit, senior energy analyst at Oppenheimer & Co., told CNBC he wasn't surprised by the White House's Keystone decision, but that he didn't agree with it.

"I don't think that the president got good advice," Gheit said. "I think he is basically doing things that would appeal to environmentalists and the people are taking it way to the left. I think it's bad for the U.S. I think it's bad for Canada."

The construction of the Gulf Coast Project pipeline in Atoka, Oklahoma. This 480-mile crude oil pipeline is being constructed by TransCanada and is part of the Keystone Pipeline Project.
Daniel Acker | Bloomberg | Getty Images
The construction of the Gulf Coast Project pipeline in Atoka, Oklahoma. This 480-mile crude oil pipeline is being constructed by TransCanada and is part of the Keystone Pipeline Project.

Killing the pipeline allows Obama to claim aggressive action on the environment. That could strengthen his hand as world leaders prepare to finalize major global climate pact next month that Obama hopes will be a crowning jewel for his legacy.

Yet it also puts the president in a direct confrontation with Republicans and energy advocates that will almost surely spill over into the 2016 presidential election.

"This is all environmental and politics. It doesn't make any economic sense to block a pipeline that will create an enormous amount of wealth to certain areas of the country, for Canada," Gheit said. "It will create jobs, it will increase our energy security because we are importing oil from a trusted and the end-all friend like Canada."

TransCanada had asked the U.S. to delay consideration of the pipeline, but the Obama administration rejected that request on Wednesday.

Read MoreTransCanada's request for suspension of Keystone permit

The State Department has jurisdiction over the pipeline because it would cross a U.S. border. State Department Spokesman John Kirby said there is no legal requirement for officials to suspend the review, adding that "a lot of interagency work" had gone into the review so far.

Still, a Republican administration — if one takes the White House — might invite TransCanada to reapply for the XL pipeline, John Kilduff, founder of Again Capital, told CNBC.

"This is one of those projects that we won't miss in the short-term, but several years from now, if the U.S. oil output dries up from a lack of investment and cutbacks, there will likely be a lot of regret that the pipeline never got built," Kilduff said.

Canadian Prime Minister Justin Trudeau said Friday he was disappointed by the Obama administration's decision.

—Reuters, the AP, CNBC's Jackie DeAngelis and NBC News contributed to this report.