U.S. on track to decide fate of Canada oil pipe

WASHINGTON Fri Jul 22, 2011 5:29pm EDT

WASHINGTON (Reuters) - The U.S. State Department will issue a final environmental report next month on TransCanada Corp's pipeline that would ship Canadian oil sands crude to Texas refineries, keeping the project on track for a final decision by the end of this year.

The $7 billion line has faced opposition from many lawmakers and environmentalists for greenhouse gas emissions associated with oil sands production, and because the line would run across the one of the world's largest freshwater resources, the Ogallala Aquifer.

"We still expect to complete the process and make a decision on the permit before the end of the year," Daniel Clune, the State Department's Principal Deputy Assistant Secretary in the Bureau of Oceans and International Environmental and Scientific Affairs, told reporters on Friday.

The Environmental Protection Agency last month asked the State Department to do the more extensive environmental review of the line, citing two leaks that occurred on an existing Keystone line in May.

It also pushed the State Department to carefully consider both the route of the pipeline and what measures are needed to prevent and detect spills.

Supporters of the up to 700,000 barrels-per-day line say it would reduce U.S. dependence on oil producers that are less friendly to the country and provide construction and maintenance jobs.

In addition, the line would help ease a glut of crude at the Cushing, Oklahoma delivery point for the New York Mercantile Exchange, shifting crude to the Texas refining center where more oil can be processed, analysts say.

Inventories in Cushing and throughout the Midwest have swelled this year due to rising Canadian supplies and a lack of pipeline capacity to ship it to refiners in the Gulf Coast, helping to push the premium of London oil futures to U.S. oil futures to record levels.

The controversy had pushed some analysts to wonder if the United States would delay a final decision until next year.

ENVIRONMENT VS. ENERGY SECURITY

After the State Department issues the assessment in August federal agencies, including the EPA, would have 90 days to comment on the department's final report.

Then the agencies would have 15 days to decide whether to push the decision up to the White House, if they felt the State Department had not adequately assessed the environmental risks. Such a move is unlikely as it could open President Barack Obama to direct criticism from environmentalists.

TransCanada was happy that the State Department was on track. "We're pleased that they are sticking to the schedule that they had highlighted and we can move the project forward," said James Millar, a spokesman for TransCanada.

The State Department's final environmental impact statement which will total more than 1,000 pages, will consider whether oil sands are corrosive to pipelines, said Clune.

It will also consider energy security issues, including the impact of the disruption in Libyan oil exports, when deciding whether to issue a permit, Clune said.

Environmentalists said the State Department is moving too fast. "The State Department cannot possibly address the many glaring gaps in its environmental analysis in the next few weeks, let alone consider lessons from the worrying string of recent pipeline spills," said Damon Moglen, climate and energy director at Friends of the Earth.

The department is planning to hold a series of meetings in September in the capitals of the states where the pipeline would cross, which are Montana, South Dakota, Nebraska, Oklahoma and Texas.

(Reporting by Timothy Gardner, additional reporting by Tom Doggett; and Scott Haggett in Calgary; Editing by Alden Bentley, Russell Blinch and Sofina Mirza-Reid)