Some unions say the Keystone XL pipeline would create thousands of jobs. Environmentalists fear it could lead to an oil spill disaster. Obama enjoyed strong support from both groups in his winning 2008 campaign for the White House.
A law Obama signed just before Christmas that temporarily extended the payroll tax cut included a Republican-written provision compelling him to make a speedy decision — within 60 days — on whether to build the pipeline. The administration is warning it would rather say no than rush a decision in an election year.
The pipeline would carry oil from tar sands in western Canada to refineries in Texas, passing through Montana, South Dakota, Nebraska, Kansas and Oklahoma. The project's developer, Calgary-based TransCanada (TSX:TRP), says the pipeline could create as many as 20,000 jobs, a figure opponents say is inflated. A State Department report last summer said the pipeline would create up to 6,000 jobs during construction.
Environmental advocates, already disappointed with Obama's failure to achieve climate change legislation and the administration's decision to delay new smog standards, have made it clear that approval of the pipeline would dampen their enthusiasm for him in November's election.
Some liberal donors threatened to cut off funds to Obama's re-election campaign to protest the project, which opponents say would transport "dirty oil" that requires huge amounts of energy to extract.
If he rejects the pipeline, Obama risks losing support from organized labour, a key part of the Democratic base, for thwarting thousands of jobs.
Obama appeared to have skirted the issue last month when the U.S. State Department announced it was postponing a decision on the pipeline until after the 2012 election. Officials said they needed extra time to study routes that avoid an environmentally sensitive area of Nebraska that supplies water to eight states.
The new route would have to be approved by Nebraska environmental officials and the State Department, which has authority because the pipeline would cross an international border.
An "arbitrary deadline" for the permit decision would compromise the process, with time needed to conduct required environmental reviews, the State Department warned in a written statement on Dec. 12. Obama administration officials confirmed that view after the payroll tax bill was approved.
Republicans call the threat little more than an excuse that allows Obama to placate environmental groups while not rejecting the pipeline outright.
"The only thing arbitrary about this decision is the decision by the president to say, 'Well, let's wait until after the next election,' " said House Speaker John Boehner.
Boehner and other Republicans say the pipeline would help Obama achieve his top priority — creating jobs — without costing taxpayer money. They hope to portray Obama's reluctance to approve the pipeline as a sign he favours environmentalists over jobs.
Russ Girling, TransCanada's president and chief executive, said his company would do whatever is necessary to make sure the project is approved.
In Nebraska, where the pipeline faces strong resistance, state officials are awaiting an environmental study that will determine a new route. Officials have said the review will take six to nine months.
Project supporters say U.S. rejection of the pipeline would not stop it from being built. Canadian Prime Minister Stephen Harper has said TransCanada could pursue an alternative route through Canada to the West Coast, where oil could be shipped to China and other Asian markets.
"Canada is going to develop this no matter what, and that oil is either going to come to the United States or it's going to go to a place like China. We want it here," said Rep. Fred Upton, chairman of the House Energy and Commerce Committee.
Opponents call the West Coast option farfetched, noting that Canadian regulators have announced a one-year delay for a similar project that would carry tar sands oil to British Columbia.
Unions are watching closely. Unemployment in construction is far higher than other industries, with more than 1.1 million construction workers jobless, said Brent Bookers, director of construction at the Laborers' International Union of North America.
"For many members of the Laborers, this project is not just a pipeline, it is a lifeline," Bookers said.
Roger Toussaint, international vice-president of the Transport Workers Union, opposes the pipeline.
"The dangers of the pipeline are compelling, and no one should believe the claims of either the Republican leadership or the energy companies, with respect to the project being shovel ready or with respect to the number of jobs it's going to produce," he said.
Associated Press writer Grant Schulte in Lincoln, Nebraska, contributed to this report.