Calgary-based TransCanada says the new project does not require presidential approval, since it does not cross a U.S. border. The shorter pipeline is expected to cost about $2.3 billion and be completed next year, the company said.
The Obama administration had suggested development of an Oklahoma-to-Texas line to alleviate an oil glut at a Cushing, Okla., storage hub.
Press secretary Jay Carney said Obama welcomed the announcement.
"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," Carney said in a statement. "We look forward to working with TransCanada to ensure that it is built in a safe, responsible and timely manner, and we commit to take every step possible to expedite the necessary federal permits.
TransCanada said Monday it still hopes to build the full 1,700-mile Keystone XL pipeline, which would carry oil derived from tar sands in Alberta, Canada to refineries along the Texas Gulf Coast. The proposed $7 billion pipeline would run through Montana, South Dakota, Nebraska and Kansas before reaching Oklahoma.
The company is working with Nebraska officials to find a route that avoids the environmentally sensitive Sandhills region.
Obama rejected the Keystone XL pipeline last month, in large part because of the uncertainty over the Nebraska route. Obama said there was not enough time for a fair review before a looming deadline forced on him by Republicans. The action did not kill the project but -- for the second time in three months -- put off a tough choice on the pipeline project, which has become the focus of a heated political fight.
Pipeline supporters -- including congressional Republicans and many business and labor leaders-- call the project a key job creator, while opponents say it would transport "dirty oil" that requires huge amounts of energy to extract. They also worry about a possible spill.
Carney said that Obama's Jan. 18 decision "in no way prejudged future applications" by TransCanada for the full, 1,700-mile project.
"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," he said.
Russ Girling, TransCanada's president and CEO, said the Oklahoma-to-Texas pipeline will transport growing supplies of U.S. crude oil to meet refinery demands in Texas.
"Gulf Coast refineries can then access lower cost domestic production and avoid paying a premium to foreign oil producers," he said, adding that the project should reduce U.S. dependence on crude from outside North America.