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First leg of Keystone pipeline slated for construction as standalone project

This Sept. 19, 2011 aerial photo shows a tar sands mine facility near Fort McMurray, in Alberta, Canada. TransCanada still needs federal approval to build a pipeline from the tar sands into the United States. AP/ Jeff McIntosh

Updated at 1:55 p.m. ET

The Obama administration in January rejected TransCanada's application to build the controversial Keystone XL pipeline, but the energy company announced Monday it will begin to build the leg of the pipeline that doesn't need the administration's approval.

In a release, TransCanada (TRP) announced it will proceed with the construction of an oil pipeline from Cushing, Oklahoma, to the U.S. Gulf Coast -- a portion of the Keystone project that the company says has its own independent value.

TransCanada also informed the State Department today that will re-apply for a permit to complete the entire Keystone project -- a 1,700 mile underground oil pipeline linking the tar sands fields of northern Alberta to oil refineries on the Texas Gulf Coast.

The company needs the State Department's approval for the project, since it crosses international borders. Last year, tens of thousands of people objecting to the pipeline protested in Washington against its approval. The State Department subsequently said it would take more time to review the project, but after congressional Republicans tried to force the administration's hand on the matter, Mr. Obama rejected it.

The White House said in a statement today that Mr. Obama welcomes the construction of the Gulf Coast section of the pipeline. "We support the company's interest in proceeding with this project, which will help address the bottleneck of oil in Cushing that has resulted in large part from increased domestic oil production, currently at an eight year high," White House Press Secretary Jay Carney said in a statement. "Moving oil from the Midwest to the world-class, state-of-the-art refineries on the Gulf Coast will modernize our infrastructure, create jobs, and encourage American energy production."

With respect to the new application for the cross-border Keystone pipeline, Carney said, "We will ensure any project receives the important assessment it deserves, and will base a decision to provide a permit on the completion of that review."

Critics of the pipeline have said it is a huge environmental risk, particularly for the sensitive Sand Hills area of Nebraska. TransCanada said today that it will re-file a permit application to build a pipeline from Canada to Steele City, Nebraska, and that it will supplement the application with an alternative route through Nebraska -- avoiding the Sand Hills -- as soon as the route is selected.

TransCanada pointed out that when Mr. Obama rejected the Keystone pipeline in January, he only objected to the rushed evaluation process, not the pipeline itself.

In the official statement he gave in January regarding the pipeline, Mr. Obama essentially endorsed the construction of the pipeline's southern leg, saying, "In the months ahead, we will continue to look for new ways to partner with the oil and gas industry to increase our energy security - including the potential development of an oil pipeline from Cushing, Oklahoma to the Gulf of Mexico - even as we set higher efficiency standards for cars and trucks and invest in alternatives like biofuels and natural gas."

TransCanada claims the Gulf Coast leg of the pipeline will create about 4,000 jobs.

Critics, meanwhile, note that turning tar sand into oil is far more energy intensive than refining conventional oil and point out that the process has already resulted in the creation of more than 60 miles of toxic holding ponds that kill birds and pollute waterways. They also argue it won't lower oil prices, since the international market will simply adjust supply to account for increased production.

In a statement, TransCanada president Russ Girling sounded optimistic about the ultimate approval of the entire pipeline.

"The over three year environmental review for Keystone XL completed last summer was the most comprehensive process ever for a cross border pipeline," he said. "Based on that work, we would expect our cross border permit should be processed expeditiously and a decision made once a new route in Nebraska is determined."

Construction on the Gulf Coast leg is expected to start around the end of March.

While the Obama White House has suggested the entire Keystone project could be approved once the new Nebraska route is found, the pipeline is still cast as a political issue.

Republican Sen. Richard Lugar, who faces a primary challenge in Indiana, released a statement Monday blasting Mr. Obama's earlier rejection of the pipeline as a "monumental dodge of responsibility."

"Americans are screaming for more affordable oil supplies," he said. "The irony is that Democratic Senate leadership is calling for more oil from Saudi Arabia even as they continue to oppose oil from Canada. President Obama has turned his back on secure, affordable oil supplies of domestic oil from North Dakota and Montana, and from our vital ally Canada."

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