Decision on Keystone oil sands pipeline delayed until 2013. Environmentalists hope it will scuttle the project.

NEW YORK (CNNMoney) -- Bowing to public pressure, the Obama administration said Thursday it will delay a decision on the controversial Keystone oil sands pipeline expansion until at least 2013.

Citing concern over the proposed route through Nebraska's Sand Hills region and over the Ogallala Aquifer, the State Department said it needs more time to study the issues and look at possible alternative routes.









"Given the concentration of concerns regarding the environmental sensitivities of the current proposed route through the Sand Hills area of Nebraska, the Department has determined it needs to undertake an in-depth assessment of potential alternative routes in Nebraska," the State Department said in a statement.

The Nebraska legislature convened a special session last week with many state lawmakers calling for a change in the pipeline's course.

Based on previous pipeline permitting experience, the State Department said the review process "could be completed as early as the first quarter of 2013."

In a separate statement, President Obama said he supported the State Department's move.

"The final decision should be guided by an open, transparent process that is informed by the best available science and the voices of the American people," said Obama.

The news set off a firestorm of comments from the pipeline's supporters and opponents, and shows just how political the issue has become.

While the decision has been put off until after the presidential election, it will no doubt be seized upon by the president's supporters and opponents during the election season.

House Speaker John Boehner criticized the delay.

"More than 20,000 new American jobs have just been sacrificed in the name of political expediency. By punting on this project, the president has made clear that campaign politics are driving U.S. policy decisions -- at the expense of American jobs."

However, the news was praised by environmentalists, who have been protesting the pipeline for months and hope the delay will ultimately lead to a scrapping of the plan altogether.

"This is a major victory," said Daniel Kessler, spokesperson with Tar Sands Action. "It's a testament to the thousands of people who came out to protest in the streets, and we think the president responded to that."

"We hope that the end result of the new review will show that the pipeline is not in the nation's best interest and it will be rejected," said Susan Casey-Lefkowitz, director of international programs at the Natural Resources Defense council.

But TransCanada (TRP), the company that wants to build the $7 billion pipeline, showed no indication of scrapping the project, even though it previously said the added expense of trying to get new permits, plus the loss of customers who have signed up to take delivery of the oil, could lead the company to kill it altogether.

"We remain confident Keystone XL will ultimately be approved," said Russ Girling, TransCanada's president and chief executive officer. "This project is too important to the U.S. economy, the Canadian economy and the national interest of the United States for it not to proceed."

Indeed, the company confirmed it has already bought $1.7 billion worth of steel pipe.

The 1,700-mile pipeline is supposed to take oil from Canada's oil sands region in Alberta to refineries on the U.S. Gulf Coast.

Environmentalists hated the project from the get-go, fearing the pipeline not only risks spills but would lock the U.S. into dependency on oil sands, a particularly dirty form of oil.

Oil sands are just that -- oil mixed with sand. To get a useful type of crude, heat is used to separate the oil from the sand. The process results in anywhere from 5% to 30% more greenhouse gas emissions than extracting conventional oil would generate.

There are also concerns that oil sands developments -- many of which look like giant open-pit strip mines -- decimate forests and pollute rivers and streams.

Just this week the International Energy Agency warned that the world risks locking itself into dirtier forms of energy and will ultimately have to spend much more to clean itself up, unless more investments in renewable energy are made today.

Nonetheless, the Obama administration was expected to approve the pipeline up until just a few weeks ago, largely on the grounds of energy security and economic development.

But the intensity of the protests turned up the heat on the Obama administration, and put it in the uncomfortable position of having to choose between two important constituencies.

Some saw Thursday's announcement as a chance to delay making that hard choice until after the upcoming presidential election.

"This is a surprise to us and counter to our existing call that the approval was still likely and only the timing was in question," said Kevin Book, managing director of research at ClearView Energy Partners. "This does indeed suggest a political, not practical, choice to 'kick the can' into 2013."

Pipeline supporters, including many in the business community, the construction trades, and nearly everyone in the oil industry, say the United States could use the 700,000 barrels a day the pipeline would carry.

Many of the world's biggest oil companies, including ExxonMobil (XOM, Fortune 500), Royal Dutch Shell (RDSA) and BP (BP), have been ramping up production from the oil sands and need a way to get it out.

While oil sands crude might be dirtier than some other forms of oil, they say, at least it comes from Canada, where environmental and human rights rules are generally strict and enforced.

Backers also said the pipeline would create 20,000 construction jobs in the short term and generate $5 billion in property tax revenue over the next century.

"This decision is deeply disappointing and troubling," American Petroleum Institute President Jack Gerard said in a statement. "Whether it will help the president retain his job is unclear, but it will cost thousands of shovel-ready opportunities for American workers."

But in highly visible protests over the last few weeks, critics had been picking apart the pipeline's promised benefits.

The jobs number, they say, is actually closer to 5,000. One study from Cornell said the pipeline could actually cost jobs by hurting the development of alternative energy and allowing for the export of oil from the Midwest, driving up the cost of gasoline in that region.

Opponents also questioned the validity of the State Department's approval process, noting that several lobbyists for the industry have close ties to the administration.

In a letter to the State Department's inspector general last month, several lawmakers said they were uncomfortable with reports saying the firm hired by the State Department to conduct the environmental review for the pipeline also has a business relationship with TransCanada.

The inspector general's office began a review of the approval process last week.