That decision, technically being made by the State Department, was practically forced on the President by Congressional Republicans, as we noted at the time. Obama needs to electrify his environmental supporters and rejecting the Keystone XL pipeline project is the most highly visible way to do this. We also pointed out in December that supporters of the pipeline were not likely to vote for Obama in any case, so he has more to gain politically by rejecting the Keystone XL.

The decision probably does not mean that the controversy or the Keystone XL is completely dead. Canada has a second option for delivering the synthetic crude from the Alberta oil sands — a pipeline to the British Columbia coast has been proposed by Kinder Morgan Inc. (NYSE: KMI). Because that pipeline is completely within Canada’s borders, the Obama administration has just turned the whole issue of oil sands development back over to the Canadians.

US protests over the pipeline focused on possible environmental damage to sensitive areas along the pipeline’s route. But the real issue has always been the development of the oil sands, and Canada is not going to kill what is now the country’s golden goose. The synthetic crude will find a way to the sea one way or another. But right now, it doesn’t look like that route will be to the US Gulf Coast.

Paul Ausick

The President could veto the bill, he could sign it and tack on a so-called signing statement, or he could sign it and make the decision Congress is forcing on him. Transcanada Corp. (NYSE: TRP), builders of the proposed Keystone XL pipeline, might have reason to worry here.

It is highly unlikely the President will veto the bill, so that choice is out. Obama has said before that he would use a signing statement only in the event that the legislation includes an unconstitutional provision. He may not like having his hand forced, but Congress can legally do it.

In the end, Obama will have to decide. Environmental groups, normally big supporters of the President, will demand that he kill the pipeline. If he chooses this course, he is required by the legislation within 15 days to provide a “report that provides a justification for determination, including consideration of economic, employment, energy security, foreign policy, trade, and environmental factors.” Will he take the bait, for that is surely what it is? House Republicans are betting that he will not, and that he will be forced to accept the pipeline.

The argument over the Keystone XL pipeline should have been settled long ago, and construction should already have started. The odds now, however, favor a presidential rejection, not because it’s the best choice, but because environmental voters could abandon him in 2012 if he approves Keystone XL. Most supporters of the pipeline were unlikely to vote for him in the first place.

Transcanada’s shares have not been affected much by today’s House vote. But as the deadline for decision on the pipeline gets closer, Transcanada could come under some pressure.

Paul Ausick

Valero Energy Corp. (NYSE: VLO) shares closed down more than -9% on the day. Marathon Petroleum Corp. (NYSE: MPC) closed down nearly -12%, Tesoro Corp. (NYSE: TSO) closed down nearly -10%, and Western Refining Inc. (NYSE: WNR) was off -13.5%. CVR Energy, Inc. (NYSE: CVI) shares plunged more than -16%.

The major integrated oil companies with refining operations also experienced a down day, with Exxon Mobil Corp. (NYSE: XOM) off about -1%, Conoco down about -3%, Chevron Corp. (NYSE: CVX) down about -2%, and BP plc (NYSE: BP) down about -0.5%.

All this carnage over a 150,000 barrel/day pipeline that currently carries almost no oil from the Gulf Coast to the storage tanks at Cushing, Oklahoma, and will not be reversed until sometime later next year. The US consumes about 9 million barrels/day of crude just for transportation use, so less than 2% of that crude should not have such an outsized effect on refiner stocks.

The Seaway pipeline transaction, the other 50% of which is owned by Enterprise Products Partners L.P. (NYSE: EPD), was merely the trigger. Refiners’ profits have been strong in recent months as those with access to WTI and cheaper crudes have been able to price the refined output based on Brent crude input costs. The differential once reached nearly $28/barrel. The price difference closed to about $11/barrel yesterday and is around $8/barrel this morning.

Brent prices are falling, but not as fast as WTI prices are rising. The reversal of the Seaway pipeline means that landlocked WTI can now get to the Gulf Coast refineries where it will be priced the same as Brent. As the two crude prices converge, refiners will not be able to feast off that differential.

Another factor weighing against the refiners is the start-up of the Bakken Oil Express, a tank-car train running from North Dakota to Louisiana. The first train-load of crude left North Dakota on November 7th with 70,000 barrels, with current rail capacity of 100,000 barrels/day expected to increase to 250,000 barrels/day. Rail transport of crude and refined products has risen by more than 9% in the past year, to about 7,600 tank-cars/week.

The price of Brent is falling because production from Libya has ramped quickly, to reach about 700,000 barrels/day already, more than half its total production before the upheaval of last Spring. Full production of 1.3 million barrels/day could be reached before mid-2012, again keeping downward pressure on Brent pricing.

The final factor pushing WTI prices up is the tentative agreement between TransCanada Corp. (NYSE: TRP) and the state of Nebraska on a new route for the Keystone XL pipeline from Canada to the Gulf Coast. This pipeline could carry up to 1.1 million barrels/day when (if) it is built. Because Canada’s synthetic crude is priced even lower than WTI, getting this pipeline into service is critical to oil sands producers who want to see the differential between synthetic crude and WTI/Brent close if not disappear altogether.

TransCanada has said that it is considering moving ahead with the section of the Keystone XL that runs from Cushing to the Gulf Coast and Enterprise has said that it will scrap plans for a new pipeline from Cushing to the Gulf but now plans to expand the Seaway pipeline to as much as 400,000 barrels/day by 2013. The two pipelines combined could carry nearly 1 million barrels/day from Cushing to the Gulf.

That million barrels represents crude that would not need to be imported by ship to the Gulf, but rather than lowering crude prices, it would raise them. That raises refiners’ input costs and raises the price of gasoline at the pump for consumers.

BP and Royal Dutch Shell plc (NYSE: RDS-A) probably stand to gain the most of any of the integrated oil companies from the new outlets to the Gulf. Shell is a big producer from the oil sands and BP is upgrading its refinery in Indiana to process the heavy Canadian synthetic crude, as well as owning production properties in the US midwest.

Refiners’ stocks are likely to take more losses today, though not as bad as the beating they got yesterday. Big oil companies could lose a bit more today, but the rising price for crude more than offsets any hits to their refining operations.

Paul Ausick

Angela Merkel says Europe may face its greatest crisis since World War II. (Reuters)

Italy’s Monti will discuss what cuts the nation faces when he meets with other senior party officials. (Reuters)

The IMF says there is a danger of asset bubbles in China. (Reuters)

Amazon.com (NASDAQ: AMZN) ships its Kindle Fire early as more competition enters the market. (Reuters)

Congress reaches a compromise to keep the federal government operating until mid-December. (Reuters)

Warren Buffett puts $10.7 billion into IBM (NYSE: IBM) shares. (WSJ)

UBS (NYSE: UBS) names its interim CEO to the position permanently. (WSJ)

Burberry profits rise on demand for luxury goods. (WSJ)

Parts shortages due to floods in Asia and lower demand for mainstream PCs challenge Dell (NASDAQ: DELL). (WSJ)

Italy’s UniCredit posts a large loss. (WSJ)

The Federal Housing Administration’s cash reserves reach dangerous lows. (WSJ)

TransCanada (NYSE: TRP) says it may have a deal with Nebraska to move the route of its Keystone XL pipeline, which would allow the project to go forward. (WSJ)

Companies find it is more difficult to recruit e-commerce executives to run complex internet platforms. (WSJ)

Anadarko (NYSE: APC) raises estimates of production from its Colorado oil fields. (WSJ)

Lowe’s (NYSE: LOW) drops sales estimates as it closes stores. (WSJ)

The new head of JCPenney (NYSE: JCP), recruited from Apple (NASDAQ: AAPL), says he will “reimagine” the chain’s stores. (WSJ)

The Commodity Futures Trading Commission will get less budget money than it requested, which will make it more difficult to implement Dodd-Frank regulations. (WSJ)

China’s demand for copper falls. (WSJ)

Many partners at Goldman Sachs (NYSE: GS) will retire this year. (WSJ)

Data for the third quarter show unexpected economic expansion in Germany and France. (FT)

The yields of Spain’s and Italy’s bonds rise sharply. (FT)

The IMF warns that China’s banks may face trouble if they do not set more flexible exchange rates. (FT)

Volkswagen nears a deal to buy Porsche. (Bloomberg)

Douglas A. McIntyre

A decision on the pipeline was due last December, but it was delayed due to a request from the US EPA to the US State Department for a new environmental review. That review has been completed, but now the State Department appears to be bowing to pressure to consider an alternative route for the pipeline as a result of concerns raised by Nebraska farmers and environmentalists about the effect of the proposed route on the environment and, especially, the vast Ogallala acquifer that provides water to a large portion of the state. A decision on the project, which was due by the end of this year, has now been delayed until after the 2012 US presidential election.

Environmental objections to the pipeline fall into two basic groups: first, mining the oil sands is an environmental disaster and should be stopped; and second, transporting the synthetic crude by pipeline to the US is too great an environmental risk.

The first objection raises the ire of Canadian officials who don’t believe that “outsiders” have any business telling them how to run their country. The counter-argument is that stopping an environmental disaster, wherever it is taking place, is everyone’s business. There’s little question that mining the oil sands requires vast amounts of water and energy, both of which Canada appears willing to spend.

As to the second objection, Canada is determined to send its synthetic crude somewhere, and if it is not to be the US, then the country will build a pipeline to the west coast and export the oil by ship to Asia. There has also been some chatter about reversing an east-to-west pipeline to carry the synthetic crude to Canada’s east coast.

Canada’s finance minister has said that the new delay jeopardizes the viability of the entire $7 billion project. Two other pipeline companies, Enbridge Inc. (NYSE: ENB) and Kinder Morgan Inc. (NYSE: KMI), are either proposing a new pipeline to the west coast (Enbridge’s Northern Gateway) or expanding an existing pipeline to carry more crude (Kinder Morgan’s Trans Mountain). Canada is clearly committed to producing the oil sands, and if the US is not interested in the synthetic crude, then the country will just sell it elsewhere.

US resistance to the project could be mitigated by a route change to avoid the environmentally sensitive area in Nebraska, but that may not be enough to mollify US protesters who want mining in the oil sands to stop completely. At this time next year, their success in getting a delay could well encourage further protests to kill the pipeline altogether. TransCanada and the Canadian government may not be willing to wait to find out.

To some degree, TransCanada is partially responsible for the delays for failing to recognize or respond to the issues raised in Nebraska. Merely saying that the Keystone XL will be really safe and that any spills will be cleaned up quickly and thoroughly is not much comfort when the water supply for more than a million people is at stake. A modest shift in the proposed route could have moved the pipeline farther east, where it could have run through the same right-of-way as the existing pipeline. There could be some reason that wouldn’t work, but there’s no evidence that TransCanada even considered it.

The US needs (or at least is expected to consume) the oil carried by the Keystone XL pipeline, and that oil will get here one way or another. By tanker, if from a non-North American source, or by rail or truck if from Canada. A pipeline moves much more crude much more safely than any other method of transport. It would be foolish for the US to prevent the Keystone XL pipeline from being built. So far, though, the fools seem to be in charge.

Paul Ausick

TransCanada stands to lose the most if the project is denied. The entire Keystone pipeline system is nearly fully contracted for a total of 900,000 barrels/day for an average term of 18 years. That is a big loss if the pipeline isn’t built. The largest producer in the oil sands is Syncrude, a joint venture that includes Imperial Oil Resources (wholly owned by Exxon Mobil Corp. (NYSE: XOM)), Suncor Energy Inc. (NYSE: SU), and China Petroleum & Chemical Corp. (NYSE: SNP) — Sinopec — among others. Other producers include ConocoPhillips Corp. (NYSE: COP), Chevron Corp. (NYSE: CVX), Murphy Oil Corp. (NYSE: MUR), Total SA (NYSE: TOT), Royal Dutch Shell plc (NYSE: RDS-A), BP plc. (NYSE: BP), and Devon Energy Corp. (NYSE: DVN).

These companies won’t lose everything because the bitumen from the oil sands will go somewhere, somehow. Unless, of course, the Canadian government decides to shut down every project in Alberta, and that simply will not happen. One of the big problems facing the producers now is that they’re crude is landlocked and sells at a substantial discount to WTI. For the week ending September 23rd, Heavy Hardesty grade crude sold for $78.28/barrel, while WTI sold for $80.29 and Brent sold for $109.17. Getting crude from Alberta to a coast, any coast, is critical for producers.

If the Keystone XL pipeline is killed, an expansion to an existing pipeline system to the US/Canadian west coast could take up some of the slack. Kinder Morgan Energy Partners LP (NYSE: KMP) is investigating an expansion to its Trans Mountain system and Enbridge Inc. (NYSE: ENB) has already begun the permitting process for a similar pipeline to the west.

Another interesting development are proposals from both of Canada’s major railroads to construct a pipeline-by-rail from Alberta to west coast. And while nothing officially like a pipeline-by-rail has been proposed for the run to the US Gulf Coast, rail traffic has already increased substantially from North Dakota south to Cushing and, eventually producers hope, to the Gulf.

In July weekly US rail carloads of petroleum and petroleum products hit a four-year high, and the August total of about 7,400 carloads is even higher. A rail tanker holds about 1,500 barrels, so every day about 1.6 million barrels of petroleum is moving around on the US rail network. Add to that another half a million barrels a day from the oil sands and that puts about another 2,500 tanker cars on the rails every day.

There were 750 reported rail accidents involving hazardous materials in 2010. The odds of a significant oil spill rise if we add more oil transport by rail.

The same is true if the Canadian crude is moved by truck. Truck transportation by surface road is even more expensive and prone to accidents. There were nearly 12,000 road accidents involving hazardous materials in 2010. Besides being much more expensive, more tanker trucks carrying up to 300 barrels of oil each raises again the odds on an environmentally significant spill.

So while pipeline spills are a concern, rail and truck accidents are far more common. The Keystone XL pipeline should be held to a very high safety standard, but it is probably the safest way to move the most Canadian crude.

The argument that Canada should stop development and extraction in the oil sands may make more environmental sense, but until a large-scale alternative transportation fuel is available at a reasonable price, oil sands development will very likely continue. And moving that oil by pipeline is really the only sensible option.

Paul Ausick

Opposing the building of the pipeline are several environment groups. These groups fear a break in the line could cause a spill, perhaps the size of the one created by the Deepwater Horizon Gulf explosion. The environmentalist have no real support for their claims either.

The pipeline will cost $7 billion to build and run nearly 2,000 miles. The State Department is to rule on whether the project may begin, probably before the end of 2011. The approval likely will be forthcoming, if the department’s earlier comments are any indication.

The debate is futile, at least insofar as it helps the general public or media to decide the merits of the arguments made by the pipeline owners and the environmentalists. Neither side has released a detailed set of assumptions about job creation or about the odds that the line could break and flood some part of the U.S. with crude. Each side has a claim but cannot support it, at least not to the extent that the facts are convincing.

The debate is based on some of the same premises other infrastructure projects are. The most recent case of this is the investment in “shovel-ready” projects. The Administration sees these as a matter of jobs creation. The opposition thinks they are a way to dig a lot of holes in the ground. There is no list of specific shovel-ready projects the media or public can see. Some of the projects may have merit, if anyone actually knows what they are. Others may be impractical.

The Keystone XL project may be one of the great employment success of the next several years. It also may lead to one of the greatest environmental catastrophes of the next decade. Since no one other than the builder has any information about its blueprints, what the future of the project will bring is only a guess.

Douglas A. McIntyre

Samsung to delay its tablet launch in the U.S. because of IP lawsuits from Apple (NASDAQ: AAPL). (Reuters)

Google (NASDAQ: GOOG) says its partners for Google TV will rise. (Reuters)

Commercial real estate loans owned by Anglo Irish Bank sold to JPMorgan (NYSE: JPM), Wells Fargo (NYSE: WFC) and Loan Star for $9.5 billion. (Reuters)

Central bankers still concerned that policy making in most nations is unlikely to help address deficit and stimulus problems. (WSJ)

Corporate earnings could slow as the economy falters and spending drops. (WSJ)

Venture-capital firm Kleiner Perkins Caufield & Byers has trouble investing in Web 2.0 companies after its great success in Web 1.0. (WSJ)

China’s central bank to ask financial firms to increase reserves. (WSJ)

Super bugs begin to attack Monsanto’s (NYSE: MON) genetically modified corn. (WSJ)

Walmart (NYSE: WMT) is successful in its digital download business. (WSJ)

A study from Georgetown University’s McDonough School of Business shows that managers play favorites among employees but not based strictly on performance. (WSJ)

Same-store sales for retailers with big back-to-school inventories are expected to be 4.8% but will come at the price of sharp discounts. (WSJ)

A drug from Bristol-Myers Squibb (NYSE: BMY) and Pfizer (NYSE: PFE) shows success in preventing stokes. (WSJ)

U.S. supports pipeline extension by TransCanada (NYSE: TRP). (WSJ)

Biotech IPOs getting more market support. (WSJ)

Losses from Hurricane Irene may hit $7 billion, another challenge to insurer earnings. (NYT)

Finland policies could undermine efforts to bail out Greece. (NYT)

The U.S. posts a trade surplus in solar power. (NYT)

General Electric (NYSE: GE) to produce short films about innovation. (NYT)

Caterpillar (NYSE: CAT) says U.S. policy destroys prospects for big business. (FT)

Profits from China oil firms allow them another large push to gain overseas assets. (FT)

The government cut forecasts for the size of the U.S. corn crop. (FT)

AT&T (NYSE: T) and T-Mobile to invest $100 million in a venture to challenge Google in the portable payment system business. (Bloomberg)

Douglas A. McIntyre

And there’s plenty of work for the likes of Nalco Holding Co. (NYSE: NLC),Clean Harbors, Inc. (NYSE: CLH), and Newpark Resources, Inc. (NYSE: NR). A ruptured crude oil pipeline belonging to Exxon Mobil Corp. (NYSE: XOM) dumped an estimated 1,000 barrels of oil into the Yellowstone River about 10 miles upstream of Billings, Montana. In China’s Bohai Bay, a well operated by ConocoPhillips Corp. (NYSE: COP) and China’s Cnooc Ltd. (NYSE: CEO) has leaked about 1,500 barrels of oil, and a well in the North Sea operated by Royal Dutch Shell plc (NYSE: RDS-A) has leaked about 1,300 barrels into the waters off the coast of Scotland.

The leaks — and there are plenty of others — have led to a slowdown in offshore drilling and, in the US, more opposition to a plan by Transcanada Corp. (NYSE: TRP) to build the 1,700-mile Keystone XL pipeline to carry crude from the oil sands region of western Alberta to the Gulf Coast. And the new regulatory regime is not just taking hold in the US either.

The five countries surrounding the Caspian Sea and its 30 billion barrels of oil have negotiated an agreement to establish an emergency response mechanism for potential oil spills. Greenland has just published its spill response plan even though test wells off the country’s west coast have so far shown no commercial quantities of oil or gas.

The plan with the largest effect appears to come from the United Nations Environment Programme, related to pollution of drinking water in Nigeria’s Ogoniland. The UN conducted a 14-month study of the effects of 50 years of oil drilling and transportation in the region and concluded that the situation is much worse than originally believed. The clean-up effort is expected to surpass that which followed the Gulf of Mexico spill last year with officials estimating recovery could take 25-30 years.

Tighter regulations and the development by governments of detailed emergency response plans means that companies like Nalco and Clean Harbors have an opportunity to shop their expertise more widely around the world. The work would not be just clean-up, but could also involve specialized consulting.

When Clean Harbors announced its second quarter results earlier this month, the company also indicated it is shopping around for acquisitions. Nalco has also reported second quarter earnings and raised its guidance for both EPS and revenues for the full fiscal year. Nalco has also agreed to a merger with Ecolab Inc. (NYSE: ECL) that is expected to close in the fourth quarter.

Clean Harbors posted an all-time high earlier this month and the stock closed yesterday at $51.57, in a 52-week range of $29.35-$59.35. Clean Harbor shares are up nearly 70% in the past 12 months. Nalco’s shares jumped in mid-July on the merger agreement with Ecolab. Shares closed yesterday at $33.48, in a 52-week range of $21.98-$37.34.

Paul Ausick

According to reports the leak was discovered quickly and the pipeline shut down after just half an hour. Some residents downstream of the leak were evacuated, but most have since been allowed to return. The Billings Gazette is providing special coverage of the spill.

Exxon officials have suggested that this year’s unusually high water in the Yellowstone contributed to the rupture to the Silvertip Pipeline, which runs from the Wyoming-Montana border roughly along US Highway 310 and crosses underneath the river near Laurel. The slick caused by the spill had traveled about 150 river miles by late Saturday afternoon, and could reach its confluence with the Missouri River as early as tomorrow. Once the slick gets into the Missouri, officials say it will be much harder to contain.

The size of this spill is not what matters, though less is certainly better than more. What will matter is the impact this spill will have on the current debate over the Keystone XL pipeline proposed by TransCanada Corp. (NYSE: TRP) to carry synthetic crude from Alberta’s oil sands to the US Gulf Coast.

The proposed route crosses both the Missouri and Yellowstone Rivers, and will transport 500,000 barrels/day in its 36-inch pipeline, far more than the 12-inch Silvertip line.

Once the current leak is cleaned up and the cause determined, there are certain to be demands for tighter rules governing pipeline construction. Those rules will surely raise the cost of building the Keystone XL pipeline, and the long battle will continue.

The leak into the Yellowstone could even possibly lead to denial of a permit for the proposed Keystone XL. The Yellowstone is an iconic American river, often touted as the longest undammed river in the US (sort of true). It shares a name with the nation’s first national park, which millions of people visit every year and millions more probably want to but can’t afford the gasoline.

This is a case where size doesn’t matter. Messing up the Yellowstone in any way is a big mistake.  The timing and the public relations damage will not exactly help an industry trying to move past a certain disaster that took place in the Gulf of Mexico.

Paul Ausick