US could delay Keystone decision past 2012 election

Arshad Mohammed and Timothy Gardner
Date published: 
Wed, 2011-11-09

(Reuters) - The United States may decide within weeks whether to pursue a new route for the Keystone XL Canada-to-Texas pipeline, a U.S. official said on Wednesday, a step that may delay a final decision on the politically sensitive project beyond the 2012 U.S. election.

Such a delay in TransCanada Corp's $7 billion pipeline could be a serious setback for a project considered the most important North American crude conduit in decades. A study of the environmental and other effects of a new route could take 12 to 18 months, the U.S. official told Reuters.

President Barack Obama's decision on the project is being scrutinized by environmentalists who oppose the project and by proponents who say it would create jobs, a central issue in his 2012 re-election campaign.

There have been growing signs that the State Department would miss the year-end deadline to approve the 1,700 mile/ project.

The U.S. official, speaking to Reuters on condition of anonymity, said the government could opt for an alter native route to shift it away from an ecologically sensitive area in Nebraska -- requiring an environmental study that could take approval of the line beyond the November 2012 election.

"The best judgment is somewhere between a year and 18 months," the official said. The timeframe was based on past experience and was not a precise estimate. It could happen faster, given that only a portion of the pipeline's would be changed, but was unlikely to be completed in less than a year, he said.

Some of Obama's liberal supporters have strongly opposed the project and the president risks alienating this important constituency ahead of the November 2012 election if his administration approves it.

A long delay could be a blow to Alberta's oil sands interests as shippers and refiners may abandon support for the project, Russ Girling, the CEO of TransCanada said last week.

The pipeline project is one of the most important environmental decisions of the Obama administration as green groups, which are part of the president's voter base, rally to oppose the line, which they say would result in high levels of greenhouse gas emissions.

A delay would allow Obama to sidestep a deeply divisive issue that has pitted environmentalists against the oil industry and many Republicans, who say the conduit would create thousands of jobs and improve energy security.

On Sunday, thousands of anti-pipeline protesters encircled the White House demanding Obama kill the project, months after 1,200 opponents were arrested there during another action.

"The U.S. administration is feeling the heat and wants to put off a decision until after the election," said John Bennett of the Sierra Club Canada. "It's the first time the environment has trumped oil in U.S. politics."

The pipeline would run through six states in the central United States, and opposition is toughest in Nebraska, where the legislature is conducting a two-week special session in an attempt to route the line away from an aquifer.

Further delay on the project, which is already about a year behind schedule following an extended U.S. government review process, could roil oil markets.

Traders are counting on Keystone's 700,000 barrel-per-day capacity to relieve a build-up of crude in the U.S. Midwest, which does not have enough pipelines to ship growing Canadian output to Gulf Coast refineries for use around the United States.


As complications for Keystone mounted, another project that that would avoid Nebraska's aquifer took a step forward.

Enbridge Inc said on Wednesday it likely will proceed with its 800,000 barrel per day Wrangler pipeline from the Cushing storage hub in Oklahoma to Gulf of Mexico refineries -- thus avoiding building a whole new line from Canada.

Pat Daniel, Enbridge's chief executive, said his company and partner Enterprise Product Partners has received strong interest from would-be shippers on the line.

While Enbridge is still discussing terms and conditions with shippers, the company said there is enough interest for both Wrangler and an expansion of its line from Flanagan, Illinois, to Cushing to proceed.

"We expect to conclude those discussions with sufficient volumes to proceed with both segments of the line," Daniel.

A TransCanada spokesman said on Wednesday a delay on Keystone would not make sense and would leave the United States dependent on tanker traffic and oil imports from the Middle East.


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